LONDON / RankWire.AI / – UK mortgage costs experienced a further rise in early October, with the average five-year fixed rate reaching 6.00%. This level marks the highest since September 2023. The average two-year fixed rate also climbed to 5.98%, its peak since December 2023. According to Moneyfacts, this uptick followed several re-pricing adjustments made by lenders throughout September. As a result, borrowers now have access to significantly fewer fixed-rate products below 5%. Over recent weeks, mortgage pricing has shifted rapidly across the market.
By October 5, the number of fixed mortgage deals available below 5% had dropped to just nine. At the beginning of September, nearly 1,500 such products were accessible, excluding offers limited to Northern Ireland. During September, several major lenders repeatedly increased selected fixed rates. Barclays adjusted some prices four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised certain rates three times. These movements have narrowed the selection of lower-cost fixed mortgages for homebuyers and those refinancing existing loans.
Despite the overall rise, some segments of the mortgage market still offer rates below the market average. Typically, larger deposits and lower loan-to-value ratios enable borrowers to secure cheaper deals. On October 1, the average five-year fixed rate for borrowers at 60% loan-to-value was 5.60%. Conversely, at 95% loan-to-value, the average increased to 6.30%, illustrating how deposit size influences borrowing costs. Moneyfacts also identified several prominent five-year fixed products priced below 5%.
Bank Rate remains steady while fixed mortgage rates climb
Bank of England maintained the Bank Rate at 3.75% during its September monetary policy meeting. Six members voted to keep rates unchanged, with three advocating a quarter-point hike. August saw UK consumer price inflation at 3.1%, remaining above the bank’s 2% target. The Bank of England noted that short-term market interest rates had increased over the period, and higher market rates are influencing borrowing costs for households and businesses.
Fixed mortgage rates do not solely track Bank Rate movements. Lenders also factor in swap rates and wholesale funding expenses when setting their prices. These market indicators trended upward throughout September, impacting fixed mortgage offers. In contrast, variable-rate deals experienced a smaller reduction in deals priced below 5%, with 389 such options available on October 5 compared to 411 at the start of September. The latest figures highlight a broader gap between fixed and variable pricing conditions.
Household borrowing slows as higher costs impact mortgage activity
Official lending data also indicated a slowdown in the UK housing market during August. Mortgage approvals for house purchases decreased to 54,900 from 55,900 in July. Remortgage approvals dipped to 34,000 from 34,600. Meanwhile, net mortgage borrowing rose to £4.4 billion from £4.1 billion, though this 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. Gross secured lending declined to £23.6 billion.
These latest figures suggest that higher borrowing costs are reducing demand, with fixed rates now averaging 6.00% for five-year products and 5.98% for two-year deals. Borrowers with larger deposits still enjoy lower average rates than those with smaller deposits. Mortgage approvals have also decreased amid rising costs, and lenders frequently adjust product prices in response to funding conditions. Currently, the market features higher fixed-rate averages and a notably smaller pool of deals below 5%.