LONDON / RankWire.AI / – UK mortgage costs experienced another upward movement in early October, with the average five-year fixed rates reaching 6.00%. This marked the highest point since September 2023. Meanwhile, average two-year fixed rates also went up to 5.98%, their highest since December 2023. Moneyfacts documented this rise following a series of lender repricing actions throughout September. As a result, borrowers now face significantly fewer fixed-rate options below 5%. Over recent weeks, mortgage pricing across the market has shifted swiftly.
By October 5, the number of fixed mortgage deals available below 5% dropped to just nine. At the beginning of September, nearly 1,500 such products were accessible, excluding offers restricted to Northern Ireland. Several major lenders responded by increasing select fixed rates multiple times during the month. Barclays adjusted some prices four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised selected rates three times. These adjustments have narrowed the pool of lower-cost fixed mortgages available for homebuyers and those refinancing existing loans.
Nonetheless, some parts of the mortgage market still offer rates below the current market average. Generally, larger deposits and lower loan-to-value ratios enable access to more affordable rates. As of October 1, the average five-year fixed rate for borrowers with a 60% loan-to-value stood at 5.60%. In contrast, the average for mortgages with a 95% loan-to-value was 6.30%. This difference highlights how deposit size continues to influence borrowing costs. Moneyfacts has also listed several leading five-year fixed products below 5%.
Bank Rate remains steady while fixed mortgage rates climb
Bank of England maintained the Bank Rate at 3.75% during its September policy meeting. Six members voted to hold rates steady, while three members supported a quarter-point increase. In August, UK consumer price inflation reached 3.1%, still above the central bank’s 2% target. The Bank of England stated that short-term market interest rates had increased during this period. It also noted that higher market rates were gradually impacting borrowing costs for households and businesses.
Fixed mortgage rates do not move solely in line with the Bank Rate. Lenders also factor in swap rates and other wholesale funding costs when determining their pricing. During September, these market indicators moved higher, which affected fixed mortgage offers. Variable-rate products experienced a smaller decline in availability below 5%. On October 5, there were 389 variable deals under that threshold, compared to 411 at the beginning of September. The latest data shows a wider gap between fixed and variable rate conditions.
Higher borrowing costs lead to fewer mortgage approvals and softer market activity
Official lending figures for August indicate a slowdown in UK housing market activity. Mortgage approvals for home purchases dropped to 54,900 from 55,900 in July. Remortgage approvals fell slightly from 34,600 to 34,000. Despite a rise in net mortgage borrowing to £4.4 billion from £4.1 billion, it remained below the six-month average of £5.2 billion. The interest rate on new mortgages increased to 4.60% from 4.45% in July. Gross secured lending also declined to £23.6 billion.
These latest mortgage data reflect higher average fixed rates and a shrinking pool of low-cost deals. Currently, five-year fixed mortgages average 6.00%, with two-year products at 5.98%. Borrowers with larger deposits continue to benefit from lower average rates compared to those with smaller deposits. Additionally, mortgage approvals have fallen as borrowing costs have risen. Lenders frequently adjust product prices in response to funding conditions, leading to a market with higher fixed-rate averages and fewer deals below 5%.