LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates climbed to 6.00%, reaching levels not seen in approximately three years. Meanwhile, the average two-year fixed rate increased to 5.98%, its highest since mid-December 2023. The uptick was noted by Moneyfacts, which reported that several major lenders had raised select mortgage prices throughout September. This development has led to a significant decline in the number of fixed-rate deals available below the 5% threshold. The last time the five-year average was at this level was in 2023.
The tally of fixed mortgage products priced under 5% dropped to just nine on October 5. In early September, there were nearly 1,500 such deals, excluding those limited to Northern Ireland. During September, Barclays raised selected fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each increased some prices three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
It remains possible for borrowers to find individual fixed deals below the market average, especially when making larger deposits or leveraging more home equity. The latest market snapshot from a comparison service highlighted leading five-year fixed deals below 5%. However, the average pricing varies considerably depending on the loan-to-value ratio. As of October 1, average five-year fixed rates ranged from 5.60% at 60% LTV to 6.30% at 95% LTV, illustrating the cost disparity faced by buyers with smaller deposits.
Fixed mortgage costs increase as Bank Rate remains at 3.75%
In September, the Bank of England maintained the Bank Rate at 3.75%, with six policymakers voting to hold and three supporting a quarter-point hike. August saw UK consumer price inflation at 3.1%, exceeding the bank’s 2% target. The Bank noted that short-term market interest rates had risen and that these higher rates were rapidly influencing borrowing costs. The next scheduled Bank Rate decision is set for November 5, following the conclusion of the September meeting on September 16.
Mortgage fixed-rate prices do not move in lockstep with Bank Rate alone. Lenders also factor in market swap rates and broader funding costs when setting fixed-rate products. During September, these market rates increased, exerting additional upward pressure on mortgage prices sector-wide. Industry analysis indicated that major lenders faced tighter profit margins as volatility in swap rates grew. Meanwhile, variable mortgage rates changed less dramatically, with 389 deals below 5% on October 5, compared to 411 at the beginning of September.
Mortgage approval activity declines amid rising borrowing costs
Official data revealed that in August, there were 54,900 mortgage approvals for house purchases, down from 55,900 in July. Approvals for remortgaging decreased slightly, from 34,600 to 34,000. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remained below the six-month average of £5.2 billion. The effective interest rate on new mortgages rose to 4.60% in August, up from 4.45% in July. Additionally, gross secured lending dropped to £23.6 billion.
The latest data underscores a mortgage market characterized by fewer low-rate fixed options and higher overall borrowing costs. Currently, five-year fixed rates average 6.00%, with two-year fixes averaging 5.98%. Borrowers with larger deposits continue to enjoy lower average rates compared to those seeking high loan-to-value mortgages. Given the frequent fluctuations in product availability and lender pricing, official figures show a weakening in mortgage approvals from recent levels as borrowing expenses increase. The mortgage rate averages referenced here were updated on October 5.