LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates reached 6.00%, marking a return to levels last observed around three years ago. The average two-year fixed rate increased to 5.98%, its highest point since mid-December 2023. Moneyfacts reported this rise after several major lenders raised select mortgage prices during September, leading to a significant decline in fixed deals available below the 5% threshold. The five-year average last matched this level in 2023.
The count of fixed mortgage products priced under 5% dropped to nine as of October 5, down from nearly 1,500 such deals at the beginning of September, excluding products limited to Northern Ireland. During September, Barclays raised selected fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each increased their prices three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
While the overall market prices have risen, borrowers can still find individual fixed-rate deals below the average, especially those with larger deposits or more home equity. The latest market snapshot from the comparison service highlighted leading five-year fixed deals below 5%. Nonetheless, pricing varies substantially depending on the loan-to-value ratio: on October 1, average five-year fixed rates ranged from 5.60% at 60% loan-to-value to 6.30% at 95% loan-to-value, illustrating the price gap faced by buyers with smaller deposits.
Fixed mortgage costs increase as Bank Rate remains steady at 3.75%
Bank of England held the Bank Rate at 3.75% in September, with six policymakers voting to keep it steady and three supporting a quarter-point hike. UK consumer price inflation stood at 3.1% in August, surpassing the central bank’s 2% target. The Bank noted that short-term market interest rates had risen, with higher rates quickly influencing borrowing costs. Its next scheduled decision on the Bank Rate is set for November 5, following the committee’s September meeting that concluded on September 16.
However, fixed mortgage prices are not directly tied to the Bank Rate alone; lenders also consider market swap rates and broader funding expenses. During September, these market rates increased, exerting additional upward pressure on mortgage pricing across the sector. Industry analysis reveals that larger lenders experienced tighter profit margins as swap-rate volatility grew. Meanwhile, variable mortgage rates changed more modestly, with 389 deals below 5% on October 5, compared to 411 at the start of September.
Rising borrowing costs cause decline in mortgage approvals
Data from the central bank indicated that in August, there were 54,900 mortgage approvals for home purchases, down from 55,900 in July, with remortgaging approvals decreasing to 34,000 from 34,600. While net borrowing increased to £4.4 billion from £4.1 billion, it remained below the recent six-month average of £5.2 billion. The effective interest rate on newly drawn mortgages rose to 4.60% in August from 4.45% in July, and gross secured lending fell to £23.6 billion.
The latest figures reflect a mortgage market with fewer low-rate fixed options and elevated borrowing costs. Currently, five-year fixed rates average 6.00%, while two-year fixes average 5.98%. Borrowers with larger deposits continue to access lower average rates than those applying for high loan-to-value mortgages. Since product availability and lender pricing can shift frequently, official data show that mortgage approvals have weakened from recent levels as borrowing costs have increased. The mortgage rate averages cited here were updated on October 5.