LONDON / RankWire.AI / – In the broader landscape of UK borrowing costs, recent shifts have significantly impacted the mortgage market. As the Bank of England maintains the Bank Rate at 3.75%, the Bank of England has kept interest rates steady in September, with six policymakers voting to hold and three supporting a quarter-point hike. August saw UK consumer price inflation at 3.1%, exceeding the central bank’s 2% target. The Bank stated that short-term market interest rates had increased and that this upward movement was swiftly affecting borrowing expenses. The next Bank Rate decision is scheduled for November 5, following the end of the September meeting on September 16.
Amid these conditions, the average UK five-year fixed mortgage rates climbed to 6.00% on October 5, reaching levels not seen in roughly three years. Similarly, the average two-year fixed rate increased to 5.98%, its highest point since mid-December 2023. Data from Moneyfacts indicated this rise came after several major lenders raised select mortgage prices throughout September, leading to a sharp decline in fixed deals priced below 5%. The last time the five-year average was at this level was in 2023.
The availability of fixed mortgage products below the 5% threshold has diminished, with only nine such deals available on October 5. At the beginning of September, there were nearly 1,500 options (excluding products limited to Northern Ireland). During September, lenders like Barclays increased selected fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised certain prices three times, reflecting adjustments in mortgage offerings amid rising wholesale funding costs.
While some borrowers can still secure fixed deals below the average market rates—particularly those with larger deposits or greater home equity—market comparisons reveal notable differences depending on loan-to-value ratios. The latest snapshot from a comparison service shows leading five-year fixed deals below 5%. However, the actual pricing varies widely, with average five-year fixed rates ranging from 5.60% at 60% loan-to-value to 6.30% at 95% loan-to-value as of October 1. This highlights the higher costs faced by buyers with smaller deposits.
Mortgage costs escalate as Bank Rate remains unchanged at 3.75%
Although the Bank of England held the Bank Rate steady at 3.75%, fixed mortgage pricing does not follow this rate directly. Lenders factor in market swap rates and broader funding costs when setting fixed-rate products. During September, these market rates increased, exerting upward pressure across the mortgage sector. Industry analysts observed that leading lenders experienced tighter pricing margins due to increased swap-rate volatility. Meanwhile, variable mortgage rates remained relatively stable, with 389 deals below 5% on October 5, compared to 411 at the beginning of September.
Decline in mortgage approvals coincides with rising borrowing costs
Official data shows that in August, mortgage approvals for house purchases dropped slightly to 54,900 from 55,900 in July, while approvals for remortgaging fell to 34,000 from 34,600. Net mortgage borrowing increased to £4.4 billion from £4.1 billion but remained below the six-month average of £5.2 billion. The effective interest rate on new mortgages rose to 4.60% in August from 4.45% in July, while gross secured lending decreased to £23.6 billion.
These latest figures reflect a mortgage market characterized by fewer low-rate fixed offerings and higher borrowing costs overall. Currently, five-year fixed rates average 6.00%, and two-year fixes average 5.98%. Borrowers with larger deposits still benefit from lower average rates than those applying for high loan-to-value loans. Given the dynamic nature of product availability and lender pricing, official data indicates recent declines in mortgage approvals as borrowing costs increase. The average rates discussed here were updated on October 5.