LONDON / RankWire.AI / – Data from UK five-year fixed mortgage rates indicate they reached 6.00% on October 5, marking a return to levels seen approximately three years prior. The average two-year fixed rate climbed to 5.98%, the highest since mid-December 2023. According to Moneyfacts, this rise followed several major lenders increasing specific mortgage rates during September. Consequently, the availability of fixed deals below the 5% threshold has significantly decreased. The five-year average last reached this level in 2023.
As of October 5, the number of fixed-rate mortgage options priced under 5% dropped to just nine. At the beginning of September, there were nearly 1,500 such deals, excluding those limited to Northern Ireland. Throughout September, Barclays increased selected fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised certain prices three times. These adjustments reflect lenders recalibrating their mortgage offerings amid rising wholesale funding costs.
While the average fixed mortgage rate has increased, borrowers can still find individual deals below the market average, particularly when they have larger deposits or substantial home equity. The latest market snapshot from a comparison service highlights leading five-year fixed deals below 5%. However, the cost of borrowing varies significantly depending on the loan-to-value ratio. On October 1, the average five-year fixed rates ranged from 5.60% at a 60% LTV to 6.30% at a 95% LTV, illustrating the price disparity faced by those with smaller deposits.
Fixed mortgage costs climb as Bank Rate remains steady at 3.75%
The 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 stood at 3.1%, exceeding the central bank’s 2% target. The Bank stated that short-term market interest rates had increased, and higher rates were swiftly impacting borrowing costs. The next scheduled decision on the Bank Rate will be announced on November 5, following the committee’s September meeting which concluded on September 16.
The pricing of fixed-rate mortgages does not move in direct correlation with the Bank Rate alone. Lenders also factor in market swap rates and overall funding costs when setting fixed products. During September, these market rates increased, exerting further upward pressure on mortgage prices across the sector. Industry analysis reveals that major lenders experienced narrower profit margins due to increased volatility in swap rates. Conversely, variable mortgage rates changed more modestly, with 389 deals below 5% on October 5, compared to 411 at the start of September.
Mortgage approvals decline as borrowing costs rise
Recent data from the central bank shows that in August, there were 54,900 mortgage approvals for house purchases, a decrease from 55,900 in July. Approvals for remortgaging also declined slightly to 34,000 from 34,600. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remains 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 during this period.
The latest figures highlight a mortgage market with fewer low-rate fixed options 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 enjoy lower average rates compared to those with higher loan-to-value mortgages. Because product availability and lender pricing are subject to frequent change, official data show that mortgage approvals have weakened from recent highs as borrowing costs increased. The mortgage rate averages referenced here were updated on October 5.