LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates hit 6.00%, marking a return to levels not seen in approximately three years. The average two-year fixed rate increased to 5.98%, reaching its highest point since mid-December 2023. According to Moneyfacts, this rise followed several major lenders raising selected mortgage prices throughout September. As a result, the availability of fixed deals below 5% has significantly diminished. The last time the five-year average was at this level was in 2023.
The count of fixed mortgage options priced under 5% declined to nine on October 5. 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, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised their selected prices three times as lenders adjusted their mortgage offerings amidst rising wholesale funding costs.
Despite this, borrowers can still find individual fixed deals below the market averages, especially when they have larger deposits or more home equity. The latest market snapshot from the comparison service highlights leading five-year fixed deals below 5%. However, the average pricing varies considerably depending on the loan-to-value ratio. On October 1, the average five-year fixed rates ranged from 5.60% at 60% loan-to-value to 6.30% at 95% loan-to-value, illustrating the price gap faced by buyers with smaller deposits.
Costs for fixed mortgages increase as Bank Rate remains at 3.75%
Bank of England maintained the Bank Rate at 3.75% in September, with six policymakers voting to keep it steady and three supporting a quarter-point hike. In August, UK consumer price inflation stood at 3.1%, exceeding the bank’s 2% target. The Bank stated that short-term market interest rates had risen and that these higher rates were quickly impacting borrowing costs. Its next scheduled decision regarding the Bank Rate is on November 5. The September meeting concluded on September 16.
The pricing of fixed mortgages does not move solely in tandem with the Bank Rate. Lenders also rely on market swap rates and overall funding costs when setting fixed-rate products. During September, these market rates increased, exerting additional pressure on mortgage pricing across the industry. Industry analysts noted that leading lenders experienced tighter pricing margins as swap-rate volatility grew. Meanwhile, variable mortgage rates shifted less dramatically, 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 revealed 54,900 mortgage approvals for home purchases in August, down from 55,900 in July. Approvals for remortgaging fell slightly, to 34,000 from 34,600. Net mortgage borrowing increased to £4.4 billion from £4.1 billion but remained below the previous 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. Gross secured lending also decreased to £23.6 billion.
The latest figures depict a mortgage market with fewer low-rate fixed options and rising 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 seeking high loan-to-value mortgages. Market conditions and lender pricing can fluctuate frequently, and official data indicates that mortgage approvals have weakened from recent peaks amid increasing borrowing costs. The mortgage rate averages presented here were updated on October 5.