Mortgage interest rates in the UK have surged to their 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-rate mortgage 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-rate mortgage has seen a hike from 5.03% to 5.09% in the same timeframe.
This spike in mortgage rates is a response to the escalating threat of higher inflation following the US and Israel’s conflict with Iran. Concurrently, consumers are facing increased fuel prices, driven by a notable rise in oil costs. Although Brent crude prices have slightly decreased from the weekend’s peak, they remain significantly elevated at around $91 per barrel, approximately 30% higher than pre-war levels.
The impact of these developments is evident at the pump, with average unleaded petrol prices rising by a penny in 24 hours to 139p per litre. Diesel prices have surged even more, climbing by 2p to 155.1p per litre, marking a nearly 13p increase since February. Should oil stabilize around $90 per barrel and currency exchange rates remain constant, UK drivers may see petrol prices reach around 140p per litre and diesel around 167p per litre.
The surge in fixed-rate mortgage costs is attributed to the escalation of swap rates, the rates at which lenders acquire funding. These rates have sharply risen due to the ongoing conflict, compounded by the Bank of England’s decision to postpone an anticipated interest rate cut. Approximately 1.2 million borrowers are set to see their fixed-rate deals expire between now and September.
Prior to the conflict, the average two-year fixed-rate mortgage stood at 4.83%, while the typical five-year rate was 4.95%. The current increase translates to an additional £19 per month or £228 per year for a standard two-year fixed-rate deal compared to pre-war rates. Furthermore, the available mortgage options have decreased significantly since the onset of hostilities, with a notable reduction in product diversity according to Moneyfacts.
Landlords are also experiencing rising costs, impacting potential rental prices. The average two-year buy-to-let residential mortgage rate has increased from 4.66% to 4.74% in the last day. TSB, a prominent high street bank, has announced a 0.5% hike in its mortgage rates following earlier increases, reflecting the uncertainty surrounding the Iran conflict.
Amidst these market fluctuations, industry experts anticipate a return to normalcy as lenders adjust their pricing strategies to align with rising rate expectations. The evolving global economic landscape and inflation projections will play a crucial role in shaping future mortgage rate trends.