LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage average rate reached 6.00%, marking levels not seen in about three years. Meanwhile, the typical two-year fixed rate increased to 5.98%, its highest since mid-December 2023. The rise was noted by Moneyfacts after several leading lenders increased selected mortgage prices during September. As a result, the availability of fixed deals below the 5% threshold has sharply declined. The five-year average last stood at this level in 2023.
The count of fixed mortgage options priced under 5% dropped to just nine on October 5. At the beginning of September, nearly 1,500 such deals were available, 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 fixed prices three times as lenders adjusted their mortgage offerings amidst rising wholesale funding costs.
Borrowers can still find individual fixed deals below the market average, especially with larger deposits or more home equity. The latest market overview from a comparison service highlighted top five-year fixed rates below 5%. However, the average cost varies considerably depending on the loan-to-value ratio. As of October 1, 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 rise as Bank Rate remains at 3.75%
Bank of England maintained the Bank Rate at 3.75% in September, with six policymakers voting to keep rates unchanged and three supporting a quarter-point hike. UK consumer price inflation stood at 3.1% in August, exceeding the bank’s 2% target. The Bank stated that short-term market interest rates had increased and that these higher rates were swiftly passing through to borrowing costs. The next Bank Rate decision is scheduled for November 5, following the conclusion of the September meeting on the 16th.
Fixed mortgage prices do not move in perfect lockstep with Bank Rate alone. Lenders also consider market swap rates and broader funding costs when determining fixed-rate products. During September, these market rates increased, exerting additional upward pressure on mortgage pricing across the sector. Industry analysis revealed that major lenders experienced tighter profit margins as swap-rate volatility intensified. Meanwhile, variable mortgage rates shifted less dramatically, with 389 variable deals below 5% on October 5, compared to 411 at the start of September.
Mortgage approvals decline amid rising borrowing costs
Data from the central bank shows that in August, 54,900 mortgages were approved for home purchases, a decrease from 55,900 in July. Approvals for remortgaging dropped to 34,000 from 34,600. Net mortgage borrowing increased to £4.4 billion from £4.1 billion but remained below the 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. Additionally, gross secured lending fell to £23.6 billion.
These latest figures highlight a mortgage market with fewer low-rate fixed options and higher average borrowing costs. Currently, five-year fixed rates average 6.00%, and two-year fixes average 5.98%. Borrowers with larger deposits continue to access lower average rates compared to those with high loan-to-value mortgages. Market offerings and lender pricing can fluctuate frequently, and official data indicates that mortgage approvals have weakened from recent levels as borrowing costs increase. The mortgage rate averages referenced here were updated on October 5.