British homeowners are facing a far bigger mortgage shock from the Middle East conflict than borrowers in the US and Europe.
Analysts say the UK’s reliance on imported energy is leaving households more exposed to rising borrowing costs.
Mortgage rates in Britain have risen far more sharply than in other major economies since fighting erupted at the end of February.
Data from Moneyfacts shows the average two-year fixed mortgage rate in the UK has climbed by 0.91 percentage points to 5.75 per cent.
For someone with a £200,000 mortgage over 25 years, that increase adds roughly £107 to monthly repayments, taking the total monthly bill to £1,258. By comparison, borrowers in the US have seen much smaller increases.
Figures from the Federal Reserve Bank of St. Louis show the average 30-year fixed mortgage rate in America has risen by just 0.38 percentage points to 6.36 per cent over the same period.
Germany has also experienced more modest rises of around 0.3 percentage points.
Economists say Britain’s heavy dependence on imported gas and oil helps explain why UK mortgage costs are rising faster than elsewhere.
Higher global energy prices tend to feed through into UK inflation more quickly, increasing pressure on interest rates and, in turn, mortgage pricing.
Millions of households face ‘mortgage shock’ | GETTY This has driven up yields on ten-year government bonds by 0.6 percentage points since January, reaching 5.18 per cent.
By contrast, US Treasury yields have climbed 0.42 percentage points, German bonds 0.31 percentage points, and French bonds just 0.26 percentage points.
Richard Carter from Quilter Cheviot said: “The UK has been hit harder than some of its peers because it is particularly exposed to imported inflation, so rises in oil and gas prices feed through more quickly.”
The structure of Britain’s mortgage market compounds these problems, leaving homeowners uniquely vulnerable to interest rate swings.
Most British banks make offering longer-term fixed rates both costly and risky, meaning borrowers shoulder the burden when rates fluctuate
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GETTYIn the final quarter of last year, 92.4 per cent of new UK home loans were fixed for periods of up to five years, European Mortgage Federation data reveals. Only the Czech Republic had a higher proportion.
This stands in stark contrast to countries such as France, Germany, the Netherlands, Spain and Denmark, where borrowers typically secure longer-term deals that shield them from sudden rate movements.
American homeowners enjoy similar protection through their 30-year fixed mortgages, the most common loan type in the US market.
The funding models used by most British banks make offering longer-term fixed rates both costly and risky, meaning borrowers shoulder the burden when rates fluctuate.
Rachael Hunnisett from April Mortgages said: “Most UK banks are funded in ways that make longer-term fixed rates expensive and riskier than offering short-term fixed rates.
Around 1.8 million fixed-rate deals are set to expire this year, according to UK Finance
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GETTYThe UK homeowner is then left shouldering the majority of the rate fluctuation risk.
“We are seeing this play out in the market with many borrowers coming to the end of a short-term fixed mortgage and having to simply put up with rate shock.”
Around 1.8 million fixed-rate deals are set to expire this year, according to UK Finance.
Roughly half of these were arranged in 2021, when borrowing costs were far lower.
