LONDON / RankWire.AI / – On October 5, the average UK five-year fixed mortgage rates hit 6.00%, marking a return to levels last seen roughly three years ago. The average two-year fixed rate increased to 5.98%, reaching its highest point since mid-December 2023. Moneyfacts reported this rise following several major lenders raising selected mortgage prices during September. Consequently, the supply of fixed-rate deals below the 5% threshold has sharply contracted. The five-year average last matched this level in 2023.
By October 5, the number of fixed mortgage products priced under 5% had fallen to nine. At the start of September, nearly 1,500 such deals were available, excluding products limited to Northern Ireland. During September, Barclays increased selected fixed rates four times. HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised chosen prices three times as they adjusted their mortgage offerings amid rising wholesale funding costs.
While some borrowers still find individual fixed deals below the market average—particularly with larger deposits or greater home equity—the latest market snapshot from a comparison service shows that leading five-year fixed options remain under 5%. However, the average prices vary significantly 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, highlighting the price gap faced by buyers with smaller deposits.
Fixed mortgage costs rise as Bank Rate remains at 3.75%
Bank of England held the Bank Rate steady at 3.75% in September, with six policymakers voting to maintain the current level and three supporting a quarter-point hike. In August, UK consumer price inflation was at 3.1%, surpassing the Bank’s 2% target. The Bank indicated that short-term market interest rates had increased and that higher rates were rapidly passing through to borrowing costs. The next scheduled Bank Rate decision will occur on November 5, following the conclusion of the September meeting on September 16.
Fixed mortgage rates do not directly follow Bank Rate movements. Lenders also factor in market swap rates and broader funding costs when setting fixed-rate products. During September, these market rates increased, exerting additional upward pressure on mortgage pricing across the sector. Industry analysis shows that major lenders faced tighter profit margins as swap-rate volatility heightened. Meanwhile, variable mortgage rates experienced smaller fluctuations, with 389 deals below 5% on October 5 compared to 411 at the start of September.
Mortgage approvals decline amid rising borrowing costs
Data from the central bank revealed that 54,900 mortgage approvals for house purchases occurred in August, down from 55,900 in July. Approvals for remortgaging dropped slightly from 34,600 to 34,000. Net mortgage borrowing increased to £4.4 billion from £4.1 billion, though this remains below the six-month average of £5.2 billion. The effective interest rate on new mortgages rose to 4.60% in August from 4.45% in July. Additionally, gross secured lending decreased to £23.6 billion.
The latest figures indicate a mortgage market with fewer low-rate fixed deals and higher average borrowing costs. Currently, five-year fixed rates average 6.00%, with two-year fixed rates 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 options and lender pricing can change frequently, official data show mortgage approvals have weakened from recent levels, coinciding with rising borrowing costs. These mortgage averages were updated on October 5.