Two major mortgage lenders in the UK are planning to raise mortgage rates, signaling the impact of the Middle East conflict on borrowers. HSBC will implement an increase in fixed rate home loan costs starting today, while Coventry Building Society is set to follow suit from Monday.
Although specific details are yet to be finalized, experts anticipate that other lenders will also raise their rates, affecting individuals seeking new home loans or looking to remortgage.
This development comes as lenders react to the risk of heightened inflation due to the conflict between the US, Israel, and Iran. The pricing of fixed rate mortgages is influenced by swap rates, the fees lenders pay to secure fixed funding.
Following the recent conflict outbreak, swap rates have surged, prompting expectations that the Bank of England will delay an anticipated interest rate cut. David Hollingworth, associate director at broker L&C Mortgages, highlighted that the market’s current uncertainty is likely to sustain pressure on mortgage rates.
According to industry experts Moneyfacts, the average two-year fixed residential mortgage rate has increased to 4.83%, with the average five-year fix rising to 4.95%. Adam French, head of consumer finance at Moneyfacts, emphasized that rising swap rates, driven by the Middle East tensions, have led to a shift in interest rate projections and a possible delay in the Bank of England’s rate cut decision.
The mortgage market is already feeling the effects, with some lenders reconsidering rate reductions. The connection between fixed mortgage pricing and swap rates means that sudden market fluctuations could hinder the recent progress towards lower mortgage rates, impacting borrower confidence.
This situation underscores that mortgage costs are influenced by global events, underscoring the interconnectedness of geopolitical dynamics, market movements, and borrower deals.