LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates reached 6.00%, a level last seen around three years ago. Meanwhile, the average two-year fixed rate climbed to 5.98%, marking its highest point since mid-December 2023. Moneyfacts reported this rise after several major lenders increased their mortgage prices during September. As a result, fixed deals below 5% have become scarce. The five-year average last hovered at this level in 2023.
The number of fixed-rate mortgages priced under 5% dropped to just nine on October 5. At the beginning of September, nearly 1,500 such deals were available, excluding those limited to Northern Ireland. During September, Barclays raised selected fixed rates four times. HSBC, Lloyds Bank, Nationwide, Santander, and TSB each increased their rates three times, as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
Borrowers still have options for fixed deals below the market average, especially if they have larger deposits or more home equity. The comparison platform’s latest snapshot features leading five-year fixed deals under 5%. However, the average rates vary 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, highlighting the pricing gap for buyers with smaller deposits.
Fixed mortgage costs increase as Bank Rate remains at 3.75%
Bank of England kept the Bank Rate steady at 3.75% in September. Six policymakers voted to hold, while three supported a quarter-point hike. UK consumer price inflation was at 3.1% in August, above the 2% target set by the bank. The Bank stated that short-term market interest rates had gone up, and this increase was quickly affecting borrowing costs. The next Bank Rate decision is scheduled for November 5. The September meeting concluded on September 16.
Mortgage fixed rates do not move directly with the Bank Rate. Lenders also consider market swap rates and broader funding costs. These rates increased during September, putting upward pressure on mortgage prices sector-wide. Industry analysis shows that large lenders faced tighter margins as swap-rate volatility grew. Variable mortgage rates changed less sharply; on October 5, there were 389 deals below 5%, compared with 411 at the start of September.
Mortgage approvals decline amid rising borrowing costs
Central bank data revealed that in August, there were 54,900 mortgage approvals for home purchases. This is down from 55,900 in July. Approvals for remortgaging fell slightly, from 34,600 to 34,000. Despite net mortgage borrowing rising to £4.4 billion from £4.1 billion, it remains below the six-month average of £5.2 billion. The effective interest rate on new mortgages increased to 4.60% in August from 4.45% in July. Gross secured lending also declined, totaling £23.6 billion.
These latest figures show a mortgage market with fewer low-rate fixed options and higher borrowing costs. Five-year fixed rates now average 6.00%, and two-year fixes average 5.98%. Borrowers with larger deposits still enjoy lower rates than those applying with high loan-to-value ratios. Product offerings and lender pricing change frequently. Official data indicates mortgage approvals have weakened from recent levels as borrowing costs increased. The mortgage averages referenced here were updated on October 5.