Two major mortgage lenders in the UK are planning to raise mortgage rates, signaling the impact of the recent Middle East conflict on borrowers. HSBC is set to implement higher rates for fixed-rate home loans starting today, while Coventry Building Society will follow suit from Monday.
Although specific details have not been confirmed yet, experts anticipate that other lenders will also increase their rates, affecting individuals seeking new home loans or looking to remortgage.
This development arises as lenders react to the threat of rising inflation due to the US and Israel’s conflict with Iran. The cost of fixed-rate mortgages is influenced by swap rates, which represent what lenders pay for fixed funding.
Following the recent conflict escalation, swap rates have surged, leading to concerns about inflation and prompting expectations that the Bank of England will postpone an anticipated interest rate cut later this month.
David Hollingworth, associate director at broker L&C Mortgages, explained that the Middle East crisis has heightened expectations of inflation, impacting fixed-rate mortgage pricing. This trend is expected to result in a chain reaction of lenders adjusting their rates.
Given the current uncertain climate, borrowers considering fixed-rate deals are advised to secure rates promptly. Moneyfacts reported an increase in the average two-year fixed residential mortgage rate to 4.83% and the average five-year fix to 4.95%.
Adam French, head of consumer finance at Moneyfacts, highlighted the sharp rise in swap rates due to the Middle East tensions, which have led to higher oil and gas prices and renewed inflation worries. This has caused some lenders to halt planned rate reductions and may impede the recent progress towards lower mortgage rates.
The fluctuation in global markets underscores how geopolitical events can influence mortgage costs, emphasizing the interconnectedness of global events, swap rates, and borrower deals.