LONDON / RankWire.AI / – UK mortgage costs increased once again in early October, with the average five-year fixed rates reaching 6.00%. This marked their highest point since September 2023. Simultaneously, average two-year fixed rates climbed to 5.98%, the peak since December 2023. According to Moneyfacts, this uptick followed several lender repricing adjustments during September. Consequently, the availability of fixed-rate options below 5% has significantly diminished. Recently, mortgage pricing has experienced rapid shifts across the market.
By October 5, the number of fixed mortgage deals under 5% had dropped to just nine. At the beginning of September, nearly 1,500 such products were accessible, excluding Northern Ireland-specific offers. During September, several major lenders repeatedly increased fixed rates on selected products. For instance, Barclays adjusted some prices four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised their selected rates three times. These changes have narrowed the range of lower-cost fixed mortgages available to homebuyers and those refinancing existing loans.
Despite the overall trend, some segments of the mortgage market still offer rates below the average. Typically, larger deposits and lower loan-to-value ratios enable access to more competitive pricing. As of October 1, the average five-year fixed rate for borrowers with 60% loan-to-value stood at 5.60%. Conversely, the rate at 95% loan-to-value was higher, averaging 6.30%. This stark difference highlights the ongoing impact of deposit size on borrowing costs. Moneyfacts has also listed several leading five-year fixed products below 5%.
Bank Rate held steady while fixed mortgage costs increase
Bank of England maintained the Bank Rate at 3.75% during its September policy meeting. Six members voted in favor of keeping rates unchanged, while three supported a quarter-point hike. Consumer price inflation in the UK reached 3.1% in August, remaining above the Bank’s 2% target. The Bank of England indicated that short-term market interest rates had risen during this period and that these increases are now influencing borrowing costs for households and businesses alike.
Fixed mortgage rates are not solely dictated by the Bank Rate. Lenders also factor in swap rates and other wholesale funding costs when setting their prices. These market indicators moved upward during September, contributing to higher fixed mortgage offers. Meanwhile, variable-rate products saw a smaller reduction in deals priced below 5%. On October 5, there were 389 variable deals under that threshold compared to 411 at the start of September. This discrepancy has expanded the gap between fixed and variable mortgage conditions.
Household borrowing slows amid rising mortgage costs
Official lending data for August indicates a slowdown in the UK housing market activity. Mortgage approvals for home purchases decreased to 54,900 from 55,900 in July. Similarly, remortgage approvals declined slightly, 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 average interest rate on new mortgages also increased to 4.60% from 4.45% in July. Gross secured lending dropped to £23.6 billion.
These latest figures reveal that borrowers now face higher fixed rates and fewer low-cost options. Currently, five-year fixed mortgages average 6.00%, with two-year products averaging 5.98%. Larger deposit holders continue to benefit from lower average rates compared to those with smaller deposits. As borrowing costs have risen, mortgage approvals have also decreased from recent highs. Funding conditions are dynamic, causing lenders to frequently adjust product prices. Consequently, the market now features higher fixed-rate averages alongside a sharply reduced selection of deals below 5%.