Mortgage rates in the UK have surged to their highest level in seven months due to the repercussions of the Iran conflict. Moneyfacts, a leading industry expert, reported that the average two-year fixed mortgage rate has exceeded 5% for the first time since last August, now standing at 5.01% after a rapid increase from 4.93% within just 24 hours. Similarly, the average five-year fixed mortgage rate has also climbed from 5.03% to 5.09% in the same timeframe.
This sudden spike in rates is a response by lenders to combat the looming threat of higher inflation following the conflict between the US, Israel, and Iran. Concurrently, the automotive sector is witnessing a significant impact as fuel prices soar due to a spike in oil costs. Despite a slight decrease from the weekend’s peak, Brent crude is still trading around $91 per barrel, approximately 30% higher than pre-war levels.
The ongoing conflict is taking a toll on consumers, with petrol prices escalating. RAC’s head of policy, Simon Williams, highlighted that unleaded petrol prices have risen by a penny to 139p per litre, while diesel prices surged by 2p to 155.1p per litre, marking a 9% increase since February 28. The trend is expected to continue if oil prices stabilize around $90 per barrel, potentially pushing petrol prices to 140p and diesel prices to 167p per litre.
The surge in fixed-rate mortgages is influenced by rising swap rates, which have surged in response to the conflict. Additionally, the Bank of England is anticipated to postpone an expected interest rate cut next week, further complicating the financial landscape for borrowers. Notably, around 1.2 million borrowers with fixed-rate deals expiring between now and September face uncertainty amid the escalating rates.
Prior to the conflict, the average two-year fixed mortgage rate was 4.83%, while the typical five-year rate stood at 4.95%. The recent increase translates to an additional cost of £19 per month, totaling £228 annually for a standard two-year fixed-rate deal compared to the pre-war period. Moreover, the availability of mortgage products has dwindled, with 164 products vanishing within a day, leaving borrowers with limited options.
Landlords are also feeling the pinch as buy-to-let residential mortgage rates have climbed from 4.66% to 4.74% in a day. TSB, a prominent high street bank, has announced a further 0.5% increase in mortgage rates amid the uncertainty surrounding the Iran conflict, following initial rate hikes of up to 0.15% on fixed-rate residential and buy-to-let mortgages.
Adam French, head of consumer finance at Moneyfactscompare.co.uk, highlighted the turmoil in the mortgage market, with numerous products being withdrawn in response to soaring swap rates. However, he anticipates that many deals may reappear as lenders adjust their pricing strategies in the coming days. The outlook for borrowers remains uncertain as mortgage rates continue to rise, contingent upon evolving global markets and inflation expectations amidst the unfolding Middle East conflict.
Justin Moy, managing director at EHF Mortgages, noted the fluctuations in lender strategies, with some opting to wait for market stabilization before reengaging in business activities. Despite the optimism surrounding falling swap rates, funding challenges persist, influencing lenders to cautiously navigate the current pricing environment.
