Mortgage rates in the UK have surged to the highest level in seven months due to the repercussions of the Iran conflict. Moneyfacts, a leading industry expert, reported that the average two-year fixed mortgage rate has surpassed 5% for the first time since last August, reaching 5.01% 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 sudden increase is a response to the looming threat of higher inflation following the conflict between the US, Israel, and Iran. Additionally, fuel prices have seen a significant spike due to the surge in oil costs. Although Brent crude prices have slightly dropped from the weekend’s peak, they remain approximately 30% higher than pre-war levels.
Motorists are feeling the financial impact as petrol prices continue to rise, with unleaded prices increasing by a penny in the last 24 hours to 139p per liter and diesel prices jumping by 2p to 155.1p. The escalating conflict has led to a sharp rise in swap rates, influencing fixed-rate mortgage costs. Furthermore, the Bank of England is expected to postpone an anticipated interest rate cut next week.
With 1.2 million borrowers facing the end of their fixed-rate deals by September, the mortgage market is undergoing significant changes. Prior to the conflict, the average two-year fixed mortgage rate was 4.83%, and the typical five-year rate was 4.95%. The recent surge has added £19 per month, totaling £228 annually, to the expenses of securing a two-year fixed-rate deal compared to the pre-war period.
Moreover, the number of available mortgage deals has decreased substantially since the conflict began, limiting options for borrowers. Landlords are also experiencing rising costs, impacting rental rates. TSB, a prominent high street bank, has raised its mortgage rates by an additional 0.5% amidst the uncertainty surrounding the Iran war.
Industry experts anticipate fluctuations in mortgage rates as global markets and inflation expectations evolve with ongoing conflicts in the Middle East. While there is optimism for a return to normalcy as swap rates decline, funding challenges and pricing uncertainties persist in the mortgage market.
