LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates hit 6.00%, marking a return to levels last observed around three years ago. Meanwhile, the average two-year fixed rate increased to 5.98%, reaching its highest point since mid-December 2023. Moneyfacts reported this rise following several major lenders raising select mortgage prices throughout September. Consequently, the availability of fixed-rate deals below 5% has sharply diminished. The five-year average rate last sat at this level in 2023.
By October 5, the number of fixed mortgage options priced under 5% had decreased to just nine. In early September, nearly 1,500 such deals were available, excluding those limited to Northern Ireland. During September, Barclays raised selected fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each increased their rates three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
While the overall market sees fewer low-rate fixed deals, borrowers can still find individual options below average market rates, especially if they have larger deposits or more home equity. The latest market snapshot from a comparison service shows leading five-year fixed deals below 5%. However, the average prices differ significantly depending on the loan-to-value ratio. As of October 1, the average five-year fixed rate ranged from 5.60% at 60% LTV to 6.30% at 95% LTV, highlighting the larger price gap faced by buyers with smaller deposits.
Rise in Fixed Mortgage Costs as Bank Rate Remains at 3.75%
The Bank of England maintained the Bank Rate at 3.75% in September. Six policymakers voted to keep rates steady, while three supported a quarter-point hike. UK consumer price inflation stood at 3.1% in August, above the bank’s 2% target. The Bank noted that short-term market interest rates had risen and that increased rates were quickly affecting borrowing costs. The next scheduled Bank Rate decision is due on November 5, with the September meeting concluding on September 16.
Mortgage fixed rates are not directly tied to Bank Rate alone. Lenders also factor in market swap rates and overall funding expenses when setting fixed-rate products. During September, these market rates increased, exerting additional upward pressure on mortgage pricing sector-wide. Industry analysis indicates that leading lenders experienced tighter profit margins as swap-rate volatility grew. Variable mortgage rates, however, changed less dramatically, with 389 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 shows that in August, 54,900 mortgage approvals were granted for house purchases, down from 55,900 in July. Approvals for remortgaging decreased slightly to 34,000 from 34,600. Despite a rise in net mortgage borrowing to £4.4 billion from £4.1 billion, this figure remains below the previous six-month average of £5.2 billion. The effective interest rate on newly drawn mortgages increased to 4.60% in August from 4.45% in July. Additionally, gross secured lending dropped to £23.6 billion.
These latest figures reflect a mortgage market with fewer low-interest fixed options and elevated borrowing costs. The current average for five-year fixed rates stands at 6.00%, with two-year fixes averaging 5.98%. Borrowers with larger deposits continue to access lower average rates compared to those seeking high loan-to-value mortgages. While product availability and lender pricing can fluctuate frequently, official data demonstrate a weakening in mortgage approvals amid rising borrowing expenses. The mortgage averages cited here were updated on October 5.