LONDON / RankWire.AI / – UK mortgage expenses increased once more in early October, with average five-year fixed rates reaching 6.00%, their highest since September 2023. The two-year fixed rates also rose to 5.98%, marking their peak since December 2023. Moneyfacts noted this increase following several lender repricing moves during September. The surge has significantly reduced the availability of fixed-rate options below 5%. Market-wide mortgage pricing has experienced rapid shifts in recent weeks.
By October 5, the number of fixed mortgage deals under 5% dropped to just nine, down from nearly 1,500 available at the start of September, excluding Northern Ireland-only offers. Major lenders repeatedly increased select fixed rates throughout September, with Barclays changing some prices four times, and HSBC, Lloyds Bank, Nationwide, Santander, and TSB each adjusting rates three times. These adjustments have narrowed the range of affordable fixed mortgages for homebuyers and those refinancing existing loans.
Despite these reductions, some borrowers can still access rates below the market average in certain segments. Generally, larger deposits and lower loan-to-value ratios translate to cheaper rates. On October 1, the average five-year fixed rate for those at 60% loan-to-value was 5.60%, whereas for 95% loan-to-value mortgages, it reached 6.30%. This gap illustrates how deposit size continues to influence borrowing costs. Moneyfacts also listed some leading five-year fixed deals below 5%.
Bank Rate remains steady while fixed mortgage costs increase
Bank of England maintained 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 hike. Consumer inflation in the UK hit 3.1% in August, remaining above the 2% target set by the central bank. The Bank noted that short-term market interest rates had risen during this period, and higher market rates are now influencing borrowing costs for households and businesses.
Fixed mortgage rates are not solely determined by Bank Rate; lenders also factor in swap rates and other wholesale funding costs, which rose during September and impacted fixed offers. Variable-rate products experienced a smaller decrease below 5%, with 389 deals available under that threshold on October 5, down from 411 at the beginning of September. The current figures highlight a broader disparity between fixed and variable mortgage pricing.
UK mortgage approvals decline as borrowing costs escalate for consumers
Official lending data for August indicates a slowdown in UK housing market activity, with mortgage approvals for house purchases dropping to 54,900 from 55,900 in July. Remortgage approvals also fell slightly, from 34,600 to 34,000. Net mortgage borrowing increased to £4.4 billion from £4.1 billion but remained below the six-month average of £5.2 billion. The interest rate on new mortgages rose to 4.60%, up from 4.45% in July, while gross secured lending declined to £23.6 billion.
These latest figures reflect the impact of rising borrowing costs, resulting in higher fixed rates and fewer low-cost deals. Currently, five-year fixed mortgages average 6.00%, and two-year products average 5.98%. Borrowers with larger deposits still benefit from lower average rates compared to those with smaller deposits. Approvals are also decreasing amid higher borrowing expenses, as lenders can adjust product prices frequently based on funding conditions. As a result, the market now features higher fixed rates and a significantly diminished pool of deals priced below 5%.