LONDON / RankWire.AI / – On October 5, the average UK five-year fixed mortgage rates hit 6.00%, a level not seen in nearly three years. Meanwhile, the typical two-year fixed rate increased to 5.98%, marking its highest point since mid-December 2023. This uptick was noted by Moneyfacts following several leading lenders raising specific mortgage prices throughout September. As a result, the supply of fixed-rate deals under 5% has sharply declined, with the five-year average last at this level in 2023.
The count of fixed mortgage options below 5% dropped to nine on October 5. In early September, nearly 1,500 deals of this kind were available, excluding products limited to Northern Ireland. During September, Barclays raised selected fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each increased their fixed prices three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
Though the market has seen a reduction, borrowers can still find individual fixed deals below the average, especially if they have larger deposits or more home equity. The latest market snapshot from the comparison service highlights leading five-year fixed options below 5%. However, the actual pricing varies considerably based 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% LTV, illustrating the price disparity faced by buyers with smaller deposits.
Cost of Fixed Mortgages Rises as Bank Rate Maintains 3.75%
In September, the Bank of England kept the Bank Rate steady at 3.75%. Out of the nine policymakers, six voted to hold the rate, while three supported a quarter-point hike. Consumer price inflation in the UK was recorded at 3.1% in August, surpassing the bank’s 2% target. The Bank stated that short-term market interest rates had risen, and the increased rates were quickly affecting borrowing costs. The next Bank Rate decision is scheduled for November 5, with the September meeting concluding on September 16.
The pricing of fixed mortgages isn’t directly tied to the Bank Rate alone. Lenders also factor in market swap rates and broader funding costs, which saw an increase during September, putting additional upward pressure on mortgage prices. Industry analysis indicates that major lenders experienced tighter margins due to increased swap-rate volatility. Meanwhile, variable-rate mortgage prices changed less dramatically, with 389 deals below 5% on October 5, compared to 411 at the start of September.
Mortgage Approvals Decline as Borrowing Costs Rise
Official data revealed that mortgage approvals for house purchases in August totaled 54,900, down from 55,900 in July. Approvals for remortgaging also decreased to 34,000 from 34,600. Despite an increase in net borrowing to £4.4 billion from £4.1 billion, the figure remains below the recent six-month average of £5.2 billion. The average interest rate on new mortgages edged up to 4.60% in August from 4.45% in July. Additionally, gross secured lending declined to £23.6 billion.
These latest figures highlight a mortgage market characterized by fewer low-rate fixed products and higher borrowing costs overall. Currently, the average five-year fixed rate stands at 6.00%, with two-year fixes averaging 5.98%. Borrowers with larger deposits continue to access lower average rates compared to those seeking high loan-to-value mortgages. Given the frequent changes in product availability and lender pricing, official data show a slowdown in mortgage approvals from recent levels as borrowing costs have increased. The mortgage averages referenced here were updated on October 5.