The average cost of a two-year fixed rate mortgage has topped 5% again, while hundreds of home loan deals have been pulled since the Middle East conflict erupted
Rising fixed rate mortgage costs means it is a worrying time for those looking for a new deal (Image: GETTY)
Mortgage rates have hit a seven-month high as UK borrowers are hit by the Iran conflict fall-out.
Industry experts Moneyfacts said the average two-year fixed rate mortgage has gone above 5% for the first time since last August. It now stands at 5.01%, having soared from 4.93% in the space of just 24 hours. The average five-year fixed mortgage has also soared, going from 5.03% to 5.09% in the space of a day.
The jump comes as lenders scramble to respond to the threat of higher inflation on the back of the US and Israel’s war with Iran.
Meanwhile, motorists continue to feel pain at the pump with a big rise in fuel prices after a spike in the cost of oil. Brent crude was trading at just over $91 a barrel in early trading today, down from almost $120 at the weekend but still around 30% above its pre-war level.
RAC head of policy Simon Williams said: “Drivers are continuing to feel the financial impact of the current conflict, with the average cost of unleaded up another penny in the last 24 hours to 139p a litre. But it’s those that depend on diesel who are really bearing the brunt, with the fuel up another 2p to 155.1p. Diesel has now increased by nearly 13p, or 9%, since 28 February, and is at its highest price since May 2024.
“If oil were to settle at around the $90 a barrel mark and the pound were to maintain its current position against the US dollar, drivers in the UK could expect average petrol prices to reach around 140p a litre, and diesel around 167p a litre. “We urge drivers to shop around and make use of free apps such as myRAC to ensure they never pay any more for fuel than they need to.”
The cost of fixed rate mortgages is determined by what are called swap rates, or how much lenders pay to institutions in return for fixed funding. Those swap rates have risen sharply on the back of the conflict. To make matters worse, the Bank of England is expected to shelve what had been an expected interest rate cut next week.
There are 1.2 million borrowers whose fixed-rate deals are due to end between now and September.
Before the conflict erupted, the average two-year fixed rate mortgage was 4.83%, and a typical five year 4.95%. The rise has added £19 a month – £228 a year – to the cost of taking out a typical two-year fixed rate deal now compared with before the war began.
The number of mortgage deals on offer has also fallen sharply since hostilities broke out, reducing the choice for lenders. According to Moneyfacts there are now 7,164 residential mortgage products available, with 164 disappearing in the space of just a day.
Costs are also rising for landlords, with implications for how much they charge renters. Moneyfacts says the average two-year buy-to-let residential mortgage rate has risen from 4.66% to 4.74% in the past day.
High street bank TSB has announced a further increase of 0.5% in its mortgage rates after revealing hikes just 24 hours ago amid the uncertainty over the Iran war. On Monday, the lender said it was increasing rates by up to 0.15% on its fixed-rate residential and buy to let mortgages. Then on Tuesday it has announced further hikes of 0.5% in mortgage rates across the board.
Adam French, head of consumer finance at Moneyfactscompare.co.uk, said: “Recent days have been some of the most turbulent in the UK mortgage market since the aftermath of the September 2022 mini-Budget. In the last 48 hours almost 500 residential mortgage products have been withdrawn as lenders reacted to rapidly rising swap rates. However, the scale is nowhere near the shock seen in late September 2022 when 935 products, which accounted for more than a quarter of the market at the time, disappeared in a single day.
“Many of these deals are likely to return within the next few days and weeks as lenders adjust their pricing to higher rate expectations.
“It’s unwelcome news for borrowers, as the prospect of falling mortgage rates has quickly given way to rate rises. How far they could go is now heavily dependent on how global markets and inflation expectations evolve as conflict in the Middle East unfolds.”
Justin Moy, managing director at Chelmsford-based EHF Mortgages, said: “This second increase this week has all the hallmarks of a lender that doesn’t want any business for the next few days, as markets settle after a turbulent few days. Most high street lenders have, in the main, had relatively small increases compared to the huge fluctuations in swap rates, with those smaller lenders that rely extensively on swap funding pulling out of the market completely, waiting for the dust to settle.
“With swap rates falling today, there will be a breeze of optimism that we will return to normal soon, but for the moment, funding will continue to be troubled on pricing, and lenders will pause or limit their new business.”
