LONDON / RankWire.AI / – UK mortgage costs increased once again in early October, with the average five-year fixed rate reaching 6.00%, marking their highest point since September 2023. Similarly, the average two-year fixed rate climbed to 5.98%, the highest since December 2023. According to Moneyfacts, this uptick followed a series of lender repricing actions throughout September. The escalation has resulted in a significantly reduced selection of fixed-rate products below 5%. Recent weeks have seen rapid shifts in mortgage pricing across the market.
By October 5, the number of fixed mortgage deals below 5% had dropped to just nine. At the beginning of September, nearly 1,500 such options were available, excluding offers limited to Northern Ireland. Several major lenders repeatedly increased their fixed rates during the month. Barclays adjusted some prices four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each elevated selected rates three times. These changes have contracted the pool of affordable fixed mortgages for homebuyers and those refinancing existing loans.
Despite this, borrowers can still find fixed rates below the market average in certain segments of the mortgage sector. Typically, larger deposits and lower loan-to-value ratios enable access to more competitively priced deals. On October 1, the average five-year fixed rate for 60% loan-to-value borrowers was 5.60%. Conversely, the average for mortgages at 95% loan-to-value increased to 6.30%. This gap highlights how deposit size continues to influence borrowing costs. Moneyfacts also identified some prominent five-year fixed options priced below 5%.
Bank Rate remains steady while fixed mortgage prices climb
Bank of England maintained the Bank Rate at 3.75% during its September policy meeting. Six members voted to keep rates unchanged, with three supporting a quarter-point hike. UK consumer price inflation hit 3.1% in August, staying above the central bank’s 2% target. The Bank stated that short-term market interest rates increased during this period and that these higher rates are influencing borrowing costs for households and businesses.
Fixed mortgage rates do not solely track Bank Rate movements. Lenders also factor in swap rates and other wholesale funding costs when setting their prices. These market indicators rose in September, impacting fixed mortgage offerings. Meanwhile, variable-rate products showed a smaller decrease in deals priced below 5%, with 389 such options available on October 5 compared to 411 at the start of September. This has created a broader disparity between fixed and variable mortgage conditions.
Mortgage approvals decline as rising borrowing costs impact consumers
Official lending figures also suggest a slowdown in the UK housing market during August. Mortgage approvals for home purchases dropped to 54,900 from 55,900 in July, and remortgage approvals fell to 34,000 from 34,600. Meanwhile, net mortgage borrowing rose to £4.4 billion from £4.1 billion, though this was still below the six-month average of £5.2 billion. The interest rate on newly drawn mortgages increased to 4.60% from 4.45% in July. Gross secured lending decreased to £23.6 billion.
These latest mortgage data points indicate higher average fixed rates and a reduced availability of low-cost options. Currently, five-year fixed rates average 6.00%, while two-year fixes are at 5.98%. Borrowers with larger deposits continue to benefit from lower average prices compared to those with smaller deposits. Additionally, mortgage approvals have declined amid rising borrowing costs, with lenders adjusting product prices frequently as funding conditions evolve. The current market landscape features higher fixed-rate averages and a significantly smaller selection of deals below 5%.