Mortgage interest rates in the UK have reached a peak not seen in the past seven months due to the repercussions of the Iran conflict. Moneyfacts, a leading industry authority, reported that the average two-year fixed-rate mortgage has surpassed 5% for the first time since August last year, now standing at 5.01% compared to 4.93% just a day earlier. Similarly, the average five-year fixed-rate mortgage has also surged from 5.03% to 5.09% within the same timeframe.
This surge in rates is a response to the looming threat of higher inflation following the ongoing conflict between the US, Israel, and Iran. Concurrently, motorists are facing increased financial strain as fuel prices continue to rise sharply due to a spike in oil costs. Despite a slight decrease from the weekend, Brent crude oil is still trading at over $91 per barrel, around 30% higher than pre-war levels.
RAC’s head of policy, Simon Williams, highlighted the impact on consumers, noting that unleaded petrol prices have risen by a penny to 139p per liter, while diesel prices have surged by 2p to 155.1p per liter. The continuous increase in fuel prices is significantly affecting consumers, with diesel prices reaching their highest level since May 2024.
The escalation in fixed-rate mortgage costs is attributed to the surge in swap rates, which are the rates paid by lenders to secure fixed funding. Additionally, the Bank of England is expected to postpone an anticipated interest rate cut in the upcoming week. Approximately 1.2 million borrowers are set to face the end of their fixed-rate deals between now and September.
Prior to the conflict, the average two-year fixed-rate mortgage was 4.83%, while the typical five-year rate was 4.95%. The recent increase has added £19 per month, totaling £228 annually, to the cost of securing a two-year fixed-rate mortgage compared to pre-war times.
Moreover, the availability of mortgage deals has significantly decreased post-conflict, limiting options for borrowers. Currently, there are 7,164 residential mortgage products available, with 164 products withdrawn in just one day. Landlords are also experiencing rising costs, leading to potential implications on rental charges.
TSB, a major high street bank, has announced a substantial 0.5% increase in mortgage rates following previous hikes within a short span due to uncertainties surrounding the Iran conflict. Adam French, from Moneyfactscompare.co.uk, highlighted the turbulence in the mortgage market post-conflict, with nearly 500 residential mortgage products withdrawn in the last 48 hours. He emphasized that the future trajectory of mortgage rates is largely dependent on global market conditions and evolving inflation expectations amidst the Middle East conflict.
Justin Moy, managing director at EHF Mortgages, noted the challenges in the current market, with lenders cautious amid funding uncertainties. While there is optimism for a return to stability with falling swap rates, the funding landscape remains uncertain, impacting pricing and new business opportunities for lenders.