The change matters for borrowers approaching the end of existing fixed-rate deals, even though most mortgage customers are not immediately affected. More than eight in 10 mortgage holders are on fixed rates, meaning their payments remain unchanged until their current agreement expires. Recent Bank of England projections cited by the BBC indicate that just over five million homeowners could see monthly mortgage repayments rise by the end of 2028.
Renewed Middle East Tensions Feed through to Mortgage Pricing
The latest rise in mortgage costs follows a renewed escalation of hostilities in the Middle East, which has affected oil prices, inflation expectations and the cost of funding used by lenders to price fixed-rate deals.
According to the BBC, mortgage rates had been falling after a ceasefire between the United States and Iran initially appeared to hold. Fresh strikes and attacks by Houthi militia on oil tankers in the Red Sea then revived concerns about global energy supplies. Oil prices subsequently reached $100 a barrel for the first time since May on Thursday.
Higher energy prices have increased concerns that inflation could remain stronger for longer. That, in turn, has reduced market expectations that central banks will be able to lower interest rates as quickly as previously anticipated.
The Independent reported that swap rates, which are widely used in determining mortgage pricing, fell after the initial ceasefire was announced and oil prices declined. They later moved higher again as hostilities resumed.
Moneyfacts data put the average two-year fixed mortgage rate at 5.59 per cent on Friday, compared with 5.46 per cent two weeks earlier. The average five-year rate rose from 5.48 per cent to 5.61 per cent over the same period. The two-year average is now at its highest level since 19 June, while the five-year figure was last recorded at that level on 7 June.
The rates remain below the levels reached earlier in the conflict. According to the BBC, the average two-year fixed deal peaked at 5.9 per cent in April.
Major Lenders Reprice Deals as Borrowers Face Renewed Uncertainty
Several of Britain’s largest mortgage lenders have responded to changing market conditions by raising rates, repricing products or temporarily removing deals from sale.
Santander, Barclays, HSBC and Halifax are among the lenders to have made changes in recent days. HSBC has also announced that it will raise mortgage rates on Monday. Moneyfacts said more than 100 mortgage products had been withdrawn over the past week while lenders reconsidered their pricing.
Rachel Springall, a finance expert at Moneyfacts, said the reversal would be “incredibly frustrating” for borrowers after weeks of falling rates. She said the market needed a period of stability and noted that borrowers needing to remortgage this year could secure a new deal with their existing lender in advance while also comparing alternatives through a broker.
David Hollingworth of L&C Mortgages said borrowers who had expected rate reductions to continue would need to reassess. “Momentum has performed an about turn,” he said, adding that fixed mortgage rates were now clearly moving upwards in the near term.
The changing market comes as borrowing patterns are also shifting. Barclays data cited by The Independent showed that 37 per cent of mortgage completions in June were made by solo buyers. The same research found that the average house deposit had fallen by 24.8 per cent year on year, while the share of borrowers taking mortgages above 75 per cent loan-to-value increased from 18.2 per cent to 22.1 per cent.
