LONDON / RankWire.AI / – UK mortgage expenses climbed once again in early October, with average five-year fixed rates reaching 6.00%, marking their highest point since September 2023. Meanwhile, the average two-year fixed rates also surged to 5.98%, the highest since December 2023. According to Moneyfacts, this upward movement followed a series of lender repricing actions in September. As a result, the availability of fixed-rate products below 5% has significantly decreased. Recent weeks have seen swift changes in mortgage pricing across the market.
By October 5, the number of fixed mortgage deals priced below 5% had dropped to just nine, a sharp decline from nearly 1,500 options available at the start of September, excluding offers limited to Northern Ireland. Several prominent lenders increased select fixed rates multiple times throughout the month, with Barclays adjusting some prices four times, and HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raising selected rates three times. These adjustments have narrowed the range of affordable fixed mortgages available for homebuyers and those seeking to refinance existing loans.
Nonetheless, borrowers can still find rates below the market average within certain segments of the mortgage market. Typically, larger deposits and lower loan-to-value ratios tend to grant access to more competitive rates. On October 1, the average five-year fixed rate for borrowers at 60% loan-to-value stood at 5.60%, whereas it increased to 6.30% for mortgages at 95% loan-to-value, illustrating how deposit size continues to influence borrowing costs. Moneyfacts also listed some leading five-year fixed options below 5%.
Bank Rate remains steady while fixed mortgage costs climb
Bank of England held the Bank Rate at 3.75% during its September policy meeting, with six members voting to keep rates unchanged and three voting for a quarter-point increase. Inflation in the UK reached 3.1% in August, remaining above the central bank’s 2% target. The Bank of England noted that short-term market interest rates increased during this period, and that these higher rates are gradually impacting borrowing costs for households and businesses.
However, fixed mortgage rates do not move solely in tandem with Bank Rate; lenders also factor in swap rates and other wholesale funding costs when setting their prices. These market indicators moved upward during September, influencing fixed mortgage offers. In contrast, variable-rate products experienced a smaller decline in availability below 5%, with 389 variable deals under that level on October 5 compared to 411 at the beginning of September, highlighting a wider disparity between fixed and variable mortgage conditions.
Higher borrowing costs lead to softer mortgage approvals in the UK market
Official lending figures also indicated a slowdown in activity within the UK housing sector during August, with mortgage approvals for house purchases decreasing to 54,900 from 55,900 in July, and remortgage approvals falling to 34,000 from 34,600. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remained below the previous six-month average of £5.2 billion. The effective interest rate on newly drawn mortgages rose to 4.60% from 4.45% in July, while gross secured lending dropped to £23.6 billion.
These latest mortgage statistics reflect the impact of rising borrowing costs, with higher fixed rates and fewer low-cost deals available to borrowers. Currently, five-year fixed mortgages average 6.00%, and two-year fixed products average 5.98%. Borrowers with larger deposits continue to benefit from lower average rates compared to those with smaller deposits, and mortgage approvals have declined from recent peaks as costs have increased. Lenders are able to adjust product prices frequently in response to changing funding conditions, which results in a market environment characterized by elevated fixed-rate averages and a significantly reduced selection of deals priced below 5%.