LONDON / RankWire.AI / – The UK five-year fixed mortgage average rate reached 6.00% on October 5, marking a return to levels last seen approximately three years ago. Meanwhile, the average two-year fixed rate increased to 5.98%, its highest point since mid-December 2023. According to Moneyfacts, this rise followed several major lenders raising select mortgage prices during September. As a consequence, the availability of fixed-rate deals below 5% has sharply declined, with the five-year average last at this level in 2023.
By October 5, the number of fixed mortgage options priced under 5% dropped to just nine. At the beginning of September, nearly 1,500 such deals existed, excluding those limited to Northern Ireland. During September, Barclays raised some fixed rates four times. Additionally, HSBC, Lloyds Bank, Nationwide, Santander, and TSB each increased selected prices three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
Borrowers still have access to individual fixed deals below the current market average, particularly when offering larger deposits or more home equity. The latest market snapshot from the comparison service highlights leading five-year fixed deals below 5%. However, there is a significant variation in pricing depending on the loan-to-value ratio. As of October 1, average five-year fixed rates ranged from 5.60% at 60% loan-to-value to 6.30% at 95% loan-to-value, illustrating the pricing disparity faced by buyers with smaller deposits.
Fixed mortgage expenses increase as Bank Rate remains at 3.75%
In September, the Bank of England maintained the Bank Rate at 3.75%, with six policymakers voting to hold and three supporting a quarter-point increase. August’s UK consumer price inflation was recorded at 3.1%, above the bank’s 2% target. The central bank stated that short-term market interest rates had risen, and that higher rates were quickly reflected in borrowing costs. The next scheduled Bank Rate decision is set for November 5, following the end of the September meeting on September 16.
The pricing of fixed-rate mortgages does not move solely in lockstep with the Bank Rate. Lenders also incorporate market swap rates and broader funding costs when determining fixed product prices. During September, those market rates increased, exerting additional pressure on mortgage pricing industry-wide. Industry analysts observed that major lenders experienced tighter margins amid increased swap-rate volatility. In contrast, variable mortgage rates changed less sharply, 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 showed 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 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 from 4.45% in July. Gross secured lending also declined, reaching £23.6 billion.
The latest figures indicate a mortgage market with fewer low-rate fixed options and higher average borrowing costs. Currently, five-year fixed rates average 6.00%, while two-year fixes average 5.98%. Borrowers with larger deposits continue to benefit from lower average rates compared to those applying for high loan-to-value mortgages. The availability of products and lender pricing can fluctuate regularly, and official data show mortgage approvals weakening from recent levels as borrowing costs increase. The mortgage rate averages mentioned here were updated on October 5.