Mortgage rates in the UK have surged to a seven-month high due to repercussions from the Iran conflict, according to industry experts at Moneyfacts. The average two-year fixed mortgage rate has exceeded 5% for the first time since August, now standing at 5.01% after a rapid increase from 4.93% within 24 hours. Similarly, the average five-year fixed mortgage rate has also climbed from 5.03% to 5.09% in the same timeframe.
This spike in rates is a response to potential inflation pressures as a result of the ongoing conflict between the US, Israel, and Iran. Concurrently, fuel prices have surged following a spike in oil costs, with Brent crude trading at over $91 a barrel, still 30% higher than its pre-war levels.
Motorists are particularly feeling the impact, with the average cost of unleaded petrol rising by a penny to 139p per litre and diesel prices jumping by 2p to 155.1p per litre. The rise in oil prices and global uncertainties are key factors contributing to the escalation in mortgage rates, linked to the surge in swap rates, which are the rates lenders pay for fixed funding.
Amidst these developments, the Bank of England is expected to delay an anticipated interest rate cut. The ramifications are significant for the 1.2 million borrowers whose fixed-rate mortgages are due for renewal by September. Prior to the conflict, average fixed mortgage rates were lower, with a typical two-year fixed rate at 4.83% and a five-year fixed rate at 4.95%.
The reduction in available mortgage deals has limited options for borrowers, with 164 products disappearing in just one day, leaving 7,164 residential mortgage products on the market. Landlords are also facing increased costs, with the average two-year buy-to-let residential mortgage rate climbing from 4.66% to 4.74%.
TSB bank has announced a further 0.5% increase in mortgage rates in response to the uncertainty surrounding the Iran conflict. This follows an initial rate hike of up to 0.15% on fixed-rate mortgages just a day earlier. The market turbulence has led to the withdrawal of nearly 500 residential mortgage products in the past 48 hours as lenders react to rising swap rates.
Experts foresee ongoing challenges in the mortgage market as lenders adjust to higher rate expectations and global market dynamics. Despite the current volatility, there is optimism that funding conditions may stabilize in the near future, but for now, lenders are cautious in their approach to new business.