LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates reached 6.00%, marking a return to levels last observed approximately three years ago. The average two-year fixed rate increased to 5.98%, reaching its highest point since mid-December 2023. This rise was noted by Moneyfacts following several major lenders’ decisions to hike certain mortgage prices during September. Consequently, the availability of fixed-rate deals below 5% has sharply declined. The last time the five-year average was at this level was in 2023.
The count of fixed mortgage products priced under 5% dropped to just nine on October 5, down from nearly 1,500 such deals at the beginning of September, excluding those limited to Northern Ireland. During September, Barclays raised selected fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each made three increases, reflecting lenders’ adjustments amidst rising wholesale funding costs.
Although the overall market shows fewer low-rate fixed options, individual deals below the average rates remain accessible, especially for those with larger deposits or more home equity. The latest market snapshot from the comparison service highlights leading five-year fixed deals below 5%. However, prices vary significantly depending on the loan-to-value ratio, with October 1 data showing average five-year fixed rates from 5.60% at 60% loan-to-value to 6.30% at 95% loan-to-value, illustrating the cost disparity faced by buyers with smaller deposits.
Rising fixed mortgage costs persist as Bank Rate remains at 3.75%
The Bank of England maintained the Bank Rate at 3.75% in September, with six policymakers voting to hold and three supporting a quarter-point increase. Consumer price inflation in the UK stood at 3.1% in August, surpassing the bank’s 2% target. The Bank indicated that short-term market interest rates had increased, and higher rates were quickly influencing borrowing costs. The next scheduled Bank Rate decision is set for November 5, following the committee’s September meeting which concluded on September 16.
Fixed mortgage rates do not directly move in line with the Bank Rate alone. Lenders also consider market swap rates and broader funding expenses when setting fixed-rate products. These market rates increased during September, exerting additional upward pressure on mortgage pricing sector-wide. Industry analysis revealed that major lenders experienced tighter profit margins as swap-rate volatility grew. Meanwhile, variable mortgage rates saw less significant adjustments, with 389 variable deals below 5% on October 5, compared to 411 at the start of September.
Mortgage approvals decline amid rising borrowing costs
Official data from the central bank indicated that in August, 54,900 mortgage approvals were granted for home purchases, a decrease from 55,900 in July. Approvals for remortgaging also fell slightly to 34,000 from 34,600. While net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remained below the previous six-month average of £5.2 billion. The effective interest rate on newly issued mortgages rose to 4.60% in August from 4.45% in July, and gross secured lending declined to £23.6 billion.
These latest figures illustrate a mortgage market with fewer low-rate fixed options and increased average borrowing costs. Currently, five-year fixed rates average 6.00%, and two-year fixes are at 5.98%. Borrowers with larger deposits continue to benefit from lower average rates compared to those seeking high loan-to-value mortgages. Market conditions and lender pricing can fluctuate frequently, and official data show that mortgage approvals have weakened from recent levels as borrowing expenses rose. The mortgage averages referenced here were updated on October 5.