LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates hit 6.00%, a level not seen in nearly three years. Meanwhile, the average two-year fixed rate increased to 5.98%, reaching its highest point since mid-December 2023. The rise was noted by Moneyfacts after several leading lenders elevated specific mortgage prices during September. This shift has significantly reduced the number of fixed-rate deals available below 5%. The five-year average last hit this figure 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 products limited to Northern Ireland. Throughout September, Barclays raised selected fixed rates on four occasions. HSBC, Lloyds Bank, Nationwide, Santander, and TSB each increased certain rates three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
While the overall market has seen rates climb, borrowers can still find individual fixed deals below the average, particularly when offering larger deposits or more home equity. The latest market snapshot from the comparison service shows top five-year fixed options below 5%. Nonetheless, average prices vary considerably depending on the loan-to-value ratio. As of October 1, the average five-year fixed rate ranged from 5.60% at 60% loan-to-value to 6.30% at 95%, illustrating the higher costs facing those with smaller deposits.
Costs for fixed mortgages rise as Bank Rate remains steady at 3.75%
Bank of England maintained the Bank Rate at 3.75% in September, with six policymakers voting to keep it unchanged and three supporting a quarter-point hike. In August, UK consumer price inflation was recorded at 3.1%, exceeding the bank’s 2% target. The Bank noted that short-term market interest rates had increased and that higher rates were quickly impacting borrowing costs. The next scheduled Bank Rate decision is set for November 5. The committee concluded its September meeting on September 16.
Fixed mortgage rates do not move in lockstep with the Bank Rate alone. Lenders 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 pricing industry-wide. Industry analysis revealed that major lenders faced narrower profit margins as swap-rate volatility grew. Conversely, variable mortgage pricing shifted less sharply, with 389 variable deals below 5% on October 5 compared to 411 at the beginning of September.
Mortgage approvals decline amid rising borrowing costs
Data from the central bank indicated there were 54,900 mortgage approvals for home purchases in August, a decrease from 55,900 in July. Approvals for remortgaging also fell, dropping 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 new mortgages rose to 4.60% in August, up from 4.45% in July. Additionally, gross secured lending decreased to £23.6 billion.
The latest figures highlight a mortgage market with fewer low-rate fixed options and higher borrowing costs overall. Currently, the average five-year fixed rate stands at 6.00%, while two-year fixes average 5.98%. Borrowers with larger deposits continue to access lower rates compared to those seeking high loan-to-value mortgages. With product availability and lender pricing subject to rapid change, official data shows mortgage approvals have weakened from recent levels as borrowing costs have increased. The mortgage rate data referenced here was updated on October 5.