LONDON / RankWire.AI / – UK mortgage costs increased once again in early October, with average five-year fixed rates reaching 6.00%. This marked the highest level since September 2023. Meanwhile, average two-year fixed rates also surged to 5.98%, the peak since December 2023. Moneyfacts reported this uptick following a series of lender repricing actions throughout September. The rise has significantly reduced the number of fixed-rate options below 5%. Recently, mortgage pricing has been shifting rapidly across the market.
By October 5, the tally of fixed mortgage deals priced below 5% dropped to just nine. At the beginning of September, nearly 1,500 such products were available, excluding offerings limited to Northern Ireland. Several major lenders increased selected fixed rates multiple times during the month—Barclays adjusted some prices four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised certain rates three times. These adjustments have narrowed the range of lower-priced fixed mortgages accessible to homebuyers and those refinancing existing loans.
Despite the decline, borrowers can still find some rates below the market average in certain segments of the mortgage sector. Typically, larger deposits and lower loan-to-value ratios allow access to more affordable rates. As of October 1, the average five-year fixed rate for borrowers with a 60% loan-to-value ratio stood at 5.60%. Conversely, the average rate for mortgages with a 95% loan-to-value ratio increased to 6.30%, illustrating how deposit sizes continue to influence borrowing costs. Moneyfacts also listed some prominent five-year fixed options priced below 5%.
Bank Rate remains steady while fixed mortgage costs ascend
Bank of England maintained the Bank Rate at 3.75% during its September policy meeting. Out of six members, five voted to keep rates unchanged, with three voting for a quarter-point increase. Consumer price inflation in the UK reached 3.1% in August, remaining above the central bank’s 2% target. The Bank of England stated that short-term market interest rates had increased during this period, and that higher market rates were now impacting borrowing costs for both households and businesses.
However, fixed mortgage rates do not follow Bank Rate movements directly. Lenders also consider swap rates and other wholesale funding expenses when setting their prices. During September, these market indicators moved upward, influencing fixed mortgage offerings. Variable-rate products, on the other hand, showed 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. These figures reveal a growing divergence between fixed and variable mortgage pricing conditions.
Household borrowing activity slows as rising costs affect the market
Official data indicates a slowdown in UK mortgage activity for August. Approvals for house purchases decreased to 54,900 from 55,900 in July, while remortgage approvals dropped to 34,000 from 34,600. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remained below the six-month average of £5.2 billion. The average interest rate on new mortgages rose to 4.60% from 4.45% in July, with gross secured lending falling to £23.6 billion.
These latest figures highlight that borrowers now face higher average fixed rates and fewer low-cost options. 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. As borrowing costs have increased, mortgage approvals have also declined from recent highs, reflecting the market’s response to rising funding expenses. Lenders are able to adjust product prices frequently, which has resulted in a market characterized by higher fixed rates and a significantly reduced number of deals below 5%.