LONDON / RankWire.AI / – UK mortgage expenses rose once again in early October, with average five-year fixed rates reaching 6.00%. This marked the highest point since September 2023. Similarly, the average two-year fixed rates climbed to 5.98%, their peak since December 2023. According to Moneyfacts, this uptick followed a series of lender repricing adjustments during September. Consequently, the market now offers far fewer fixed-rate products below 5%. Over recent weeks, mortgage pricing across the sector has shifted rapidly.
By October 5, the pool of fixed mortgage deals priced under 5% shrank to just nine. At the beginning of September, nearly 1,500 such options were available, excluding offerings limited to Northern Ireland. Several major lenders repeatedly increased specific fixed rates throughout September, with Barclays changing some prices four times. HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised selected rates three times. These moves reduced the availability of lower-cost fixed mortgage options for homebuyers and those refinancing existing loans.
While the number of sub-5% fixed deals has diminished, borrowers can still find lower-than-average rates in certain segments of the mortgage market. Typically, larger deposits and lower loan-to-value ratios grant access to more affordable rates. As of October 1, the average five-year fixed rate for those at 60% loan-to-value was 5.60%. In contrast, the rate for mortgages at 95% loan-to-value averaged 6.30%. This difference highlights how deposit size continues to influence borrowing costs. Moneyfacts also highlighted some prominent five-year fixed options available 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 steady, while three favored a quarter-point hike. UK consumer price inflation reached 3.1% in August, remaining above the central bank’s 2% target. The Bank stated that short-term market interest rates had increased during this period, with higher rates gradually impacting household and business borrowing costs.
Fixed mortgage rates do not track Bank Rate directly. Instead, 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. Variable-rate products, however, showed a smaller reduction in availability below 5%, with 389 deals under that level on October 5 compared to 411 at the beginning of September. This discrepancy has resulted in a wider gap between fixed and variable borrowing conditions.
Housing market activity slows as rising borrowing costs impact household lending
Official mortgage lending data for August revealed a slowdown in UK housing market activity. House purchase approvals decreased to 54,900 from 55,900 in July, while remortgage approvals fell to 34,000 from 34,600. Net mortgage borrowing rose slightly to £4.4 billion from £4.1 billion but remained below the recent six-month average of £5.2 billion. The average interest rate on new mortgages increased to 4.60% from 4.45% in July, with gross secured lending dropping to £23.6 billion.
These latest figures indicate that higher borrowing costs are leading to fewer low-cost fixed deals, with five-year fixed rates now averaging 6.00% and two-year products averaging 5.98%. Larger deposit buyers continue to enjoy lower average rates compared to those with smaller deposits. Additionally, mortgage approvals have declined from recent levels as lending becomes more expensive. Funding conditions have prompted lenders to adjust product prices frequently. As a result, the current market environment features a combination of rising fixed-rate averages and a significantly reduced selection of deals below 5%.