LONDON / RankWire.AI / – UK mortgage costs increased once again in early October, with average five-year fixed rates reaching 6.00%. This is the highest level since September 2023. Similarly, average two-year fixed rates climbed to 5.98%, their peak since December 2023. Moneyfacts reported this rise following a series of lender repricing actions during September. As a result, fixed-rate options below 5% have become scarce for borrowers. Recent weeks have seen rapid changes in mortgage pricing across the market.
By October 5, the number of fixed mortgage deals under 5% dropped to just nine. At the beginning of September, nearly 1,500 such products were available, excluding offers limited to Northern Ireland. Several major lenders repeatedly increased fixed rates throughout September. Barclays adjusted some rates four times. HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised selected rates three times. These moves narrowed the selection of lower-cost fixed mortgages for homebuyers and those refinancing existing loans.
However, some areas of the mortgage market still offer rates below the current market average. Larger deposits and lower loan-to-value ratios generally secure more affordable options. On October 1, the average five-year fixed rate for borrowers at 60% loan-to-value was 5.60%. For mortgages at 95% loan-to-value, the average climbed to 6.30%. This difference underscores how deposit size influences borrowing costs. Moneyfacts also highlighted some prominent five-year fixed products available below 5%.
Bank Rate remains steady while fixed mortgage rates increase
Bank of England maintained the Bank Rate at 3.75% during its September policy meeting. Six members voted to keep rates unchanged, while three supported a quarter-point rise. UK consumer price inflation reached 3.1% in August, staying above the bank’s 2% target. The Bank of England noted that short-term market interest rates had risen during that period. It also observed that higher market rates are impacting borrowing costs for households and businesses.
Fixed mortgage rates are not solely determined by the Bank Rate. Lenders also factor in swap rates and other wholesale funding costs. These market indicators moved higher throughout September, influencing fixed mortgage offerings. Variable-rate deals saw a smaller reduction in deals below 5%. On October 5, there were 389 variable deals under that level. At the start of September, the market offered 411. The latest figures reveal a growing gap between fixed and variable rate conditions.
UK housing market sees fewer mortgage approvals as borrowing costs rise
Official data for August show a slowdown in UK housing activity. Mortgage approvals for house purchases fell to 54,900 from 55,900 in July. Remortgage approvals declined slightly to 34,000 from 34,600. Net mortgage borrowing increased to £4.4 billion from £4.1 billion but stayed below the recent six-month average of £5.2 billion. The effective interest rate on new mortgages rose to 4.60% from 4.45% in July. Gross secured lending dropped to £23.6 billion.
These figures mean borrowers face higher fixed rates and fewer low-cost deals. Currently, five-year fixed mortgages average 6.00%, while two-year fixed deals average 5.98%. Borrowers with larger deposits continue to benefit from lower average rates than those with smaller deposits. As borrowing costs rise, mortgage approvals have also decreased from recent highs. Lenders frequently adjust product prices based on funding conditions. The market now combines higher fixed rates with a significantly reduced pool of deals below 5%.