Mortgage interest rates have surged to a seven-month peak in the UK due to the repercussions of the Iran conflict. Moneyfacts, a leading industry source, reported that the average two-year fixed mortgage rate has surpassed 5% for the first time since August, now standing at 5.01% after a rapid increase from 4.93% within just 24 hours. Similarly, the average five-year fixed mortgage rate has also spiked, climbing from 5.03% to 5.09% in a single day.
This sudden escalation in mortgage rates is a response to the looming threat of higher inflation following the conflict between the US, Israel, and Iran. Concurrently, motorists are experiencing a significant hike in fuel prices as oil costs surge. While Brent crude traded slightly above $91 per barrel, down from nearly $120 over the weekend, it remains approximately 30% higher than pre-war levels.
Drivers are particularly feeling the impact, with unleaded fuel prices rising by a penny to 139p per liter within the past 24 hours, and diesel prices escalating by 2p to 155.1p. Notably, diesel prices have surged by almost 13p, or 9%, since the end of February, reaching their highest point since May 2024.
The increase in fixed-rate mortgage costs is closely tied to rising swap rates, which dictate how much lenders pay for fixed funding. These rates have sharply risen due to the ongoing conflict, further exacerbated by the Bank of England’s decision to postpone an anticipated interest rate cut.
Approximately 1.2 million borrowers are facing the end of their fixed-rate deals between now and September. Prior to the conflict, the average two-year fixed mortgage rate was 4.83%, and the typical five-year rate was 4.95%. Consequently, borrowers now face an additional £19 per month, amounting to £228 annually for a standard two-year fixed-rate deal compared to pre-war rates.
Moreover, the availability of mortgage deals has dwindled significantly post-conflict, limiting options for borrowers. Moneyfacts data reveals a reduction in residential mortgage products, with 164 disappearing in just one day, leaving 7,164 products currently available.
Landlords are also experiencing rising costs, impacting rental rates. The average two-year buy-to-let residential mortgage rate has climbed from 4.66% to 4.74% in the last 24 hours. TSB, a prominent high street bank, has raised its mortgage rates by an additional 0.5% following earlier hikes, reflecting the uncertainty surrounding the Iran conflict.
Industry experts anticipate a potential return of withdrawn mortgage products as lenders adjust pricing amidst rising rate expectations. However, the future trajectory of mortgage rates remains uncertain, contingent upon global market trends and evolving inflation expectations amid the ongoing conflict in the Middle East.
