LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage average rate reached 6.00%, a level last observed around three years ago. The typical two-year fixed rate increased to 5.98%, hitting its highest point since mid-December 2023. Moneyfacts reported this rise after several major lenders raised select mortgage prices throughout September. This has led to a sharp decline in fixed deals priced below 5%. The five-year average was at this level previously in 2023.
The number of fixed mortgage options under 5% dropped to nine on October 5. At the start of September, there were nearly 1,500 such deals, excluding those limited to Northern Ireland. During September, Barclays increased selected fixed rates four times. HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised specific prices three times as lenders adjusted their mortgage offerings amid rising wholesale funding costs.
Borrowers with larger deposits or more home equity still have access to fixed deals below market averages. The comparison service listed top five-year fixed options below 5% in its latest market snapshot. However, prices vary significantly depending on loan-to-value ratios. On October 1, average five-year fixed rates ranged from 5.60% at 60% LTV to 6.30% at 95% LTV, highlighting the higher costs for buyers with smaller deposits.
Costs of fixed mortgages increase while Bank Rate remains steady at 3.75%
In September, the Bank of England maintained the Bank Rate at 3.75%. Six policymakers voted to keep it steady, while three supported a quarter-point hike. In August, UK consumer price inflation was 3.1%, above the bank’s 2% target. The Bank stated that short-term market interest rates had risen and that borrowing costs were passing through quickly. The next Bank Rate decision is scheduled for November 5. The September meeting concluded on September 16.
Fixed mortgage rates do not move directly with the Bank Rate. Lenders also factor in market swap rates and broader funding costs. These market rates increased in September, putting additional pressure on mortgage pricing. Industry analysis shows that major lenders faced tighter profit margins as swap-rate volatility grew. Variable mortgage rates changed less sharply; on October 5, there were 389 variable deals below 5%, compared with 411 at the start of September.
Mortgage approvals decline as borrowing costs rise
Data from the central bank shows 54,900 mortgage approvals for home purchases in August. This is down from 55,900 in July. Approvals for remortgaging fell to 34,000 from 34,600. Net mortgage borrowing increased to £4.4 billion from £4.1 billion, but remained below the recent six-month average of £5.2 billion. The effective interest rate on new mortgages rose to 4.60% in August, up from 4.45% in July. Gross secured lending dropped to £23.6 billion.
The latest figures reflect a mortgage market with fewer fixed-rate deals below 5% and higher average borrowing costs. The five-year fixed rate now averages 6.00%, while two-year fixes are at 5.98%. Borrowers with larger deposits continue to access lower rates than those with higher loan-to-value ratios. Product availability and lender pricing can fluctuate frequently. Official data shows mortgage approvals have weakened from recent levels as borrowing costs increase. The mortgage averages cited here were updated on October 5.