LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates reached 6.00%, marking a return to levels 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. This rise was documented by Moneyfacts following several major lenders increasing selected mortgage rates throughout September. Consequently, the availability of fixed deals below the 5% threshold has sharply diminished. The five-year average last equaled this level in 2023.
The count of fixed mortgage options priced under 5% dropped to just nine by October 5. At the beginning of September, there were nearly 1,500 such deals, excluding those limited to Northern Ireland. During September, Barclays increased selected fixed rates four times. HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised certain prices three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
While individual fixed-rate deals below the market average remain accessible, particularly for those with larger deposits or more home equity, the latest comparison service shows leading five-year fixed options below 5% in its recent market overview. Nonetheless, the average costs vary significantly depending on the loan-to-value ratio. As of October 1, average five-year fixed rates ranged from 5.60% at a 60% loan-to-value to 6.30% at a 95% loan-to-value, illustrating the cost disparity faced by buyers with smaller deposits.
Fixed mortgage costs escalate while Bank Rate remains steady at 3.75%
The Bank of England maintained the Bank Rate at 3.75% in September. Six policymakers voted to hold the rate, while three supported a quarter-point increase. August’s UK consumer price inflation registered at 3.1%, exceeding the central bank’s 2% target. The Bank noted that short-term market interest rates had risen, with the higher rates swiftly affecting borrowing costs. Its upcoming Bank Rate decision is scheduled for November 5, with the previous September meeting concluding on September 16.
It is important to recognize that fixed mortgage rates are not directly tied to Bank Rate alone. Lenders also factor in market swap rates and overall funding costs when determining fixed-rate products. These market rates climbed throughout September, exerting additional pressure on mortgage pricing across the industry. Industry experts observed that leading lenders experienced narrower pricing margins due to increased swap-rate volatility. Meanwhile, variable mortgage pricing changed less dramatically, with 389 variable deals below 5% on October 5, compared to 411 at the beginning of September.
Mortgage approvals decline as borrowing costs rise
Data from the central bank indicated that 54,900 mortgage approvals for house purchases occurred in August, down from 55,900 in July. Approvals for remortgaging dropped slightly to 34,000 from 34,600. Although 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 drawn mortgages rose to 4.60% in August, up from 4.45% in July. Additionally, gross secured lending fell to £23.6 billion.
The latest statistics reveal a mortgage market characterized by fewer low-rate fixed deals and rising average borrowing costs. Currently, five-year fixed rates average 6.00%, with two-year fixes at 5.98%. Borrowers with larger deposits continue to access lower average rates compared to those applying for high loan-to-value mortgages. As product availability and lender pricing can shift rapidly, official figures show that mortgage approvals have weakened from recent levels amid increased borrowing costs. The mortgage rate averages cited here were updated on October 5.