Mortgage interest rates in the UK have surged to their highest level in seven months due to the repercussions of the Iran conflict, according to industry experts at Moneyfacts. The average two-year fixed-rate mortgage has surpassed 5% for the first time since last August, reaching 5.01% from 4.93% within just 24 hours. Similarly, the average five-year fixed-rate mortgage has increased from 5.03% to 5.09% in the same timeframe.
This significant spike in mortgage rates is a response to the potential impact of heightened inflation following the ongoing conflict between the US, Israel, and Iran. Meanwhile, drivers are experiencing the effects of rising fuel prices, with Brent crude trading around $91 a barrel, reflecting a 30% increase from pre-war levels.
RAC’s head of policy, Simon Williams, highlighted the financial strain on motorists, noting a continuous rise in fuel costs. Unleaded petrol prices have surged by a penny to 139p per litre, while diesel prices have climbed by 2p to 155.1p, marking a nearly 9% increase since February. Williams advised consumers to utilize resources like the myRAC app to ensure they find the best fuel prices.
The surge in fixed-rate mortgages is attributed to the sharp rise in swap rates, which determine the cost of fixed funding for lenders. Additionally, the Bank of England is expected to postpone an anticipated interest rate cut in light of current market conditions. Approximately 1.2 million borrowers are set to face the end of their fixed-rate deals by September.
Prior to the conflict, the average two-year fixed-rate mortgage stood at 4.83%, while the typical five-year rate was 4.95%. The increase in rates has added £19 monthly, equivalent to £228 annually, for a typical two-year fixed-rate deal compared to pre-war rates. Lenders have also reduced the number of available mortgage products, with 164 products disappearing within a day, leaving a total of 7,164 residential mortgage options.
Landlords are also experiencing rising costs, affecting rental prices. The average two-year buy-to-let residential mortgage rate has climbed from 4.66% to 4.74% in the past day. TSB, a prominent high street bank, announced a further 0.5% increase in mortgage rates amid uncertainty surrounding the Iran conflict, following earlier rate hikes.
Adam French from Moneyfactscompare.co.uk highlighted the recent turbulence in the mortgage market, with a substantial withdrawal of residential mortgage products in response to escalating swap rates. Despite the challenges, French anticipates a return of these deals as lenders adjust to evolving rate expectations. The implications of global markets and inflation on mortgage rates are closely monitored as the situation in the Middle East unfolds.
Justin Moy, managing director at EHF Mortgages, emphasized the cautious approach of lenders amidst market volatility, with some lenders withdrawing from the market temporarily. As swap rates show signs of improvement, optimism for a return to stability grows, although funding challenges and pricing uncertainties persist in the current climate.