LONDON / RankWire.AI / – As of October 5, the UK five-year fixed mortgage rates have reached 6.00%, a level not seen in approximately three years. The average two-year fixed rate has increased to 5.98%, marking its highest point since mid-December 2023. This rise was documented by Moneyfacts following several major lenders raising selected mortgage prices during September. The consequence has been a sharp reduction in the availability of fixed deals below 5%. The five-year average last hit this level in 2023.
The count of fixed mortgage options priced under 5% dropped to nine on October 5. At the beginning of September, nearly 1,500 such deals were available, excluding products limited to Northern Ireland. Throughout September, Barclays increased selected fixed rates on four occasions. HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised select prices three times as lenders adjusted their mortgage offerings amidst rising wholesale funding costs.
While fixed deals under the market average are still accessible, they tend to be more available with larger deposits or greater home equity. The latest market snapshot from the comparison service highlighted leading five-year fixed deals below 5%. Nonetheless, the average rates differ significantly depending on the loan-to-value ratio. On October 1, averages ranged from 5.60% at 60% loan-to-value to 6.30% at 95% loan-to-value, illustrating the higher costs faced by buyers with smaller deposits.
Rising fixed mortgage costs coincide with Bank Rate remaining 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 hike. In August, UK consumer price inflation stood at 3.1%, above the central bank’s 2% target. The Bank noted that short-term market interest rates had increased, and that the higher rates were rapidly influencing borrowing costs. The upcoming Bank Rate decision is scheduled for November 5, with the September meeting concluding on September 16.
Fixed mortgage rates do not track Bank Rate directly. Instead, lenders also factor in market swap rates and broader funding costs when setting fixed-rate offerings. During September, these market rates rose, exerting additional pressure on mortgage pricing industry-wide. Industry analysis indicates that major lenders faced narrower pricing margins amid increased swap-rate volatility. Meanwhile, variable mortgage rates changed more gradually, with 389 deals below 5% on October 5 compared to 411 at the start of September.
Mortgage approval numbers decline amid rising borrowing costs
Data from the central bank revealed that in August, there were 54,900 mortgage approvals for home purchases, down from 55,900 in July. Approvals for remortgaging decreased to 34,000 from 34,600. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remained below the recent six-month average of £5.2 billion. The average effective interest rate on newly drawn mortgages rose to 4.60% in August, up from 4.45% in July. Additionally, gross secured lending dropped to £23.6 billion.
The latest figures reflect a mortgage market with fewer fixed-rate products at lower rates and overall higher borrowing costs. Currently, five-year fixed rates average 6.00%, while two-year fixes average 5.98%. Borrowers with larger deposits continue to have access to comparatively lower rates than those with high loan-to-value mortgages. Product availability and lender pricing are subject to frequent change, and official data indicate that mortgage approvals have slowed compared to recent levels as borrowing costs increase. These mortgage averages were updated on October 5.
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