Mortgage rates in the UK have surged to their highest level in seven months due to the impact of the Iran conflict. Moneyfacts, industry experts, 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 24 hours. Likewise, the average five-year fixed mortgage rate has also spiked from 5.03% to 5.09% in just one day.
Lenders are swiftly adapting to the threat of rising inflation amidst the US and Israel’s conflict with Iran, leading to the sharp rise in mortgage rates. Meanwhile, motorists are experiencing a significant hike in fuel prices following an increase in oil costs. Despite Brent crude trading slightly lower at over $91 per barrel today, it remains approximately 30% higher than pre-war levels.
Drivers are feeling the financial strain, with unleaded fuel prices rising by a penny to 139p per litre and diesel increasing by 2p to 155.1p. Diesel prices have surged nearly 13p, or 9%, since February 28 and are currently at their highest level since May 2024. If oil stabilizes around $90 per barrel and the pound maintains its value against the US dollar, petrol prices could reach around 140p per litre, with diesel around 167p per litre.
The increase in fixed-rate mortgages is linked to the rise in swap rates, determining how much lenders pay for fixed funding. These rates have escalated due to the conflict, compounded by the Bank of England likely postponing an anticipated interest rate cut next week. Approximately 1.2 million borrowers are expected to see their fixed-rate deals expire between now and September.
Prior to the conflict, the average two-year fixed mortgage rate was 4.83%, with the typical five-year rate at 4.95%. This rise has added £19 monthly, or £228 annually, to the cost of obtaining a two-year fixed-rate mortgage compared to before the conflict. Furthermore, the number of available mortgage deals has notably decreased since the conflict began, limiting options for borrowers, with 164 products disappearing within a day.
Landlords are also facing increased costs, impacting rental prices. The average two-year buy-to-let residential mortgage rate has risen from 4.66% to 4.74% in a day. TSB, a high street bank, has raised its mortgage rates by an additional 0.5% following previous hikes amidst uncertainty surrounding the Iran conflict.
Adam French from Moneyfactscompare.co.uk noted the recent turbulence in the mortgage market, with nearly 500 residential mortgage products withdrawn in the last 48 hours. The future trajectory of mortgage rates will heavily rely on global market dynamics and inflation expectations as the Middle East conflict unfolds. Justin Moy, managing director at EHF Mortgages, highlighted the ongoing challenges in funding and pricing, indicating a temporary pause in new business activity as markets stabilize.