LONDON / RankWire.AI / – As of October 5, the UK five-year fixed mortgage rate has climbed to 6.00%, marking the first time in about three years that such levels have been observed. Meanwhile, the average two-year fixed rate increased to 5.98%, its highest point since mid-December 2023. Moneyfacts reported this rise after several major lenders elevated certain mortgage prices during September, which has significantly reduced the number of fixed-rate deals available below the 5% threshold. The last time the five-year average was at this level was in 2023.
At the start of October, the count of fixed mortgage options priced under 5% dropped to just nine. Earlier in September, nearly 1,500 deals were available in this category, excluding products limited to Northern Ireland. Throughout September, Barclays increased selected fixed rates on four occasions, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised their prices three times amid ongoing adjustments in mortgage offerings driven by rising wholesale funding costs.
Despite the overall trend, individual fixed mortgage deals below the market average still exist, especially for borrowers with larger deposits or more equity in their homes. The latest market overview by the comparison service highlighted leading five-year fixed deals below 5%. However, the average rate varies considerably depending on the loan-to-value ratio, with data from October 1 showing averages from 5.60% at 60% LTV to 6.30% at 95% LTV, illustrating the wider price gap faced by buyers with smaller deposits.
Fixed mortgage rates climb as Bank Rate remains steady at 3.75%
In September, the Bank of England held its Bank Rate steady at 3.75%, with six policymakers voting to maintain the current level and three in favor of a quarter-point increase. Consumer price inflation in the UK stood at 3.1% in August, surpassing the bank’s 2% target. The Bank indicated that short-term market interest rates had risen and that these higher rates were quickly filtering into borrowing costs. The next scheduled Bank Rate decision is set for November 5, following the conclusion of the September meeting on September 16.
Mortgage fixed-rate pricing does not move solely in tandem with Bank Rate. Lenders also factor in market swap rates and broader funding costs when setting their fixed-rate products. During September, these market rates increased, putting additional pressure on mortgage prices across the sector. Industry analysis shows that major lenders experienced narrower pricing margins as volatility in swap rates heightened. Meanwhile, variable mortgage rates experienced less fluctuation, with 389 deals below 5% on October 5, compared to 411 at the beginning of September.
Rising borrowing costs lead to a decline in mortgage approvals
Recent data from the central bank revealed that in August, mortgage approvals for house purchases totaled 54,900, down from 55,900 in July. Approvals for remortgaging decreased slightly from 34,600 to 34,000. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it still fell short of the six-month average of £5.2 billion. The average interest rate on newly borrowed mortgages rose to 4.60% in August, up from 4.45% in July. Additionally, gross secured lending dropped to £23.6 billion.
These latest figures reflect a mortgage market with fewer low-rate fixed options and higher overall borrowing costs. Currently, five-year fixed rates average 6.00%, while two-year fixes are at 5.98%. Borrowers with larger deposits continue to benefit from lower average rates compared to those seeking high loan-to-value mortgages. The availability of products and pricing from lenders can fluctuate frequently, and official data indicates a slowdown in mortgage approvals as borrowing costs rise. The mortgage rate averages mentioned here were updated on October 5.