LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates hit 6.00%, marking a return to levels last seen approximately three years prior. Meanwhile, the average two-year fixed rate climbed to 5.98%, reaching its highest point since mid-December 2023. This increase was documented by Moneyfacts following several prominent lenders raising select mortgage prices throughout September. As a result, the supply of fixed deals under 5% has diminished sharply. The five-year average had not been at this level since 2023.
The count of fixed mortgage products priced below 5% dropped to nine on October 5. At the beginning of September, there were nearly 1,500 such deals, excluding those limited to Northern Ireland. During September, Barclays made four separate increases to selected fixed rates. Similarly, HSBC, Lloyds Bank, Nationwide, Santander, and TSB each elevated their fixed prices three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
Although fixed deals below the market average are still available, particularly for borrowers with larger deposits or more home equity, the latest comparison data shows leading five-year fixed options below 5%. Nonetheless, average rates can differ widely depending on the loan-to-value ratio. As of October 1, the average five-year fixed rates ranged from 5.60% at a 60% loan-to-value to 6.30% at 95% LTV, highlighting the cost disparity faced by buyers with smaller deposits.
Costs of fixed-rate mortgages climb as Bank Rate remains steady at 3.75%
The Bank of England maintained the Bank Rate at 3.75% during September, with six policymakers voting to keep it unchanged and three voting for a quarter-point hike. Consumer price inflation in the UK stood at 3.1% in August, exceeding the bank’s 2% target. The Bank indicated that short-term market interest rates had increased, and that these higher rates were rapidly affecting borrowing costs. The next scheduled decision on the Bank Rate is set for November 5. The September meeting concluded on September 16.
It’s important to note that fixed mortgage pricing does not move in lockstep with the Bank Rate alone. Lenders also factor in market swap rates and overall funding costs when setting fixed-rate products. During September, these market rates rose, adding pressure to mortgage pricing industry-wide. Analyses reveal that major lenders faced tighter profit margins due to increased swap-rate volatility. Conversely, variable mortgage rates experienced less fluctuation, with 389 deals below 5% on October 5, compared to 411 at the beginning of September.
Borrowing activity declines as mortgage rates rise
Data from the central bank shows that mortgage approvals for house purchases in August totaled 54,900, down from 55,900 in July. Approvals for remortgaging declined to 34,000 from 34,600. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remained below the six-month average of £5.2 billion. The average interest rate on newly drawn mortgages rose to 4.60% in August from 4.45% in July. Additionally, gross secured lending decreased to £23.6 billion.
These recent figures depict a mortgage market characterized by a reduced availability of low-rate fixed products and higher borrowing costs overall. Currently, five-year fixed rates average 6.00%, while two-year fixes are at 5.98%. Borrowers with larger deposits continue to benefit from comparatively lower rates than those seeking high loan-to-value mortgages. Since product options and lender pricing can change frequently, the official data indicate a weakening in mortgage approvals from recent levels amid rising borrowing costs. The mortgage rate averages referenced here were updated on October 5.