LONDON / RankWire.AI / – UK mortgage expenses increased once again in early October, with average five-year fixed rates hitting 6.00%. This marked the highest level since September 2023. Similarly, average two-year fixed rates climbed to 5.98%, reaching their peak since December 2023. The uptick was recorded by Moneyfacts following several lender re-pricing actions in September. As a result, the availability of fixed-rate products below 5% has significantly diminished. Recent weeks have seen rapid changes in mortgage pricing across the market.
By October 5, the count of fixed mortgage deals under 5% had dropped to just nine. At the beginning of September, there were nearly 1,500 such options, excluding those limited to Northern Ireland. Throughout September, several major lenders repeatedly increased fixed rates on selected products. Barclays adjusted some prices four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised rates three times. These adjustments have narrowed the range of affordable fixed mortgages available to homebuyers and those refinancing existing loans.
Despite the reductions, borrowers can still find rates below the market average in certain segments of the mortgage sector. Typically, larger deposits and lower loan-to-value ratios grant access to more competitive pricing. On October 1, the average five-year fixed rate for borrowers at 60% loan-to-value stood at 5.60%. Conversely, the average for mortgages at 95% loan-to-value increased to 6.30%. This difference underscores how deposit size continues to influence borrowing costs. Moneyfacts also highlighted some prominent five-year fixed-rate products priced below 5%.
Bank Rate remains steady while fixed mortgage costs rise
Bank of England maintained the Bank Rate at 3.75% during its September policy meeting. Six members voted to keep rates unchanged, with three opting for a quarter-point increase. UK consumer price inflation reached 3.1% in August, remaining above the central bank’s 2% target. The Bank of England noted that short-term market interest rates had increased in the period and that these higher rates were filtering through to borrowing costs for households and businesses.
Fixed mortgage rates are influenced by more than just the Bank Rate. Lenders also consider swap rates and other wholesale funding costs when setting their prices. These market indicators rose during September, impacting fixed mortgage offers. Variable-rate products showed a smaller decline in deals available below 5%. On October 5, there were 389 variable deals under that threshold, compared to 411 at the start of September. The latest data reveals a broader disparity between fixed and variable pricing conditions.
Higher borrowing costs lead to softer mortgage approval activity
Official lending data also indicated a slowdown in UK housing market activity during August. Mortgage approvals for home purchases declined to 54,900 from 55,900 in July. Remortgage approvals fell to 34,000 from 34,600. Meanwhile, net mortgage borrowing increased to £4.4 billion from £4.1 billion, although this was still below the 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 decreased to £23.6 billion.
These latest mortgage figures highlight the impact of rising borrowing costs, with fixed rates averaging 6.00% for five-year terms and 5.98% for two-year terms. Borrowers with larger deposits continue to benefit from lower average rates compared to those with smaller deposits. Additionally, mortgage approvals have declined amid increased borrowing expenses. Lenders frequently adjust product prices in response to funding conditions, resulting in a market environment characterized by higher fixed rates and a shrinking pool of deals below 5%.
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