Mortgage interest rates in the UK have surged to a seven-month peak due to repercussions from 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, now standing at 5.01% compared to 4.93% just a day earlier. Additionally, the average five-year fixed-rate mortgage has also seen a sharp increase, rising from 5.03% to 5.09% within 24 hours.
The escalation in rates follows a rush by lenders to address the looming threat of heightened inflation triggered by the ongoing conflict between the US, Israel, and Iran. Simultaneously, drivers are facing higher fuel costs as oil prices spike, with Brent crude trading at over $91 a barrel, about 30% higher than pre-war levels.
RAC’s head of policy, Simon Williams, highlighted the financial strain on motorists, noting a significant uptick in fuel prices. Unleaded petrol costs have risen by a penny to 139p per liter, while diesel prices surged by 2p to 155.1p, marking a 9% increase since February. Williams advised drivers to utilize resources like the myRAC app to ensure optimal fuel savings.
The surge in fixed-rate mortgage costs is influenced by rising swap rates, the fees lenders pay for fixed funding. These rates have sharply increased due to the ongoing conflict, compounded by the Bank of England’s decision to postpone an anticipated interest rate cut.
Approximately 1.2 million borrowers are expected to see their fixed-rate mortgage deals expire between now and September. Prior to the conflict, the average two-year fixed-rate mortgage stood at 4.83%, with the typical five-year rate at 4.95%. The recent surge has added £19 monthly, equivalent to £228 annually, to the cost of securing a two-year fixed-rate deal.
Moreover, the availability of mortgage products has dwindled post-conflict, with a notable decrease in options for borrowers. Moneyfacts reported a reduction to 7,164 residential mortgage products, with 164 disappearing in just a day. Landlords are also facing increased costs, affecting rental rates, as the average two-year buy-to-let residential mortgage rate climbed from 4.66% to 4.74% in the past day.
TSB bank announced a further 0.5% increase in mortgage rates amid the uncertainty surrounding the Iran conflict. The adjustment follows a prior rate hike of up to 0.15% on fixed-rate residential and buy-to-let mortgages. Adam French from Moneyfactscompare.co.uk highlighted the market turbulence, with nearly 500 mortgage products withdrawn in the last 48 hours.
Justin Moy, managing director at EHF Mortgages, noted that recent rate hikes indicate a temporary pause in lending activity as markets stabilize. Although swap rates are currently declining, funding challenges persist, leading lenders to cautiously manage new business. Moy emphasized the need for lenders to adapt to evolving global market conditions and inflation expectations resulting from the Middle East conflict.