Mortgage rates in the UK have reached a seven-month peak following repercussions from the Iran conflict. According to Moneyfacts, the average two-year fixed rate mortgage has surpassed 5% for the first time since last August, now standing at 5.01% from a previous 4.93% within 24 hours. Similarly, the average five-year fixed mortgage rate has risen from 5.03% to 5.09% in the same timeframe.
This surge is a response to heightened inflation risks due to the ongoing conflict between the US, Israel, and Iran. Simultaneously, motorists are experiencing increased fuel costs attributed to a spike in oil prices. Despite a slight drop from nearly $120 over the weekend, Brent crude is still trading at around $91 per barrel, marking a 30% increase from pre-war levels.
Drivers are particularly impacted, with unleaded fuel prices rising by a penny to 139p per liter and diesel prices up by 2p to 155.1p. The escalating prices have seen diesel costs surge by almost 13p since the end of February, reaching its highest price since May 2024.
The fixed-rate mortgage costs are influenced by swap rates, which have sharply risen due to the conflict. Additionally, the Bank of England is anticipated to hold off on an expected interest rate cut next week. Approximately 1.2 million borrowers have fixed-rate deals expiring between now and September.
Prior to the conflict escalation, the average two-year fixed rate mortgage was 4.83%, and the typical five-year rate was 4.95%. This increase translates to an additional £19 per month or £228 annually for a standard two-year fixed-rate deal compared to pre-war rates.
The market has seen a decrease in mortgage options since the conflict began, with a reduction in available residential mortgage products. Landlords are also facing rising costs, with the average two-year buy-to-let residential mortgage rate climbing from 4.66% to 4.74% in a day.
Major bank TSB has announced a further 0.5% increase in mortgage rates, following earlier rate hikes amidst uncertainty surrounding the Iran conflict. The recent upheavals in the mortgage market have led to the withdrawal of nearly 500 residential mortgage products in the last 48 hours.
Overall, borrowers are now facing unexpected rate rises instead of the previously anticipated decline in mortgage rates. The future trajectory of these rates will heavily depend on global market conditions and inflation expectations as the situation in the Middle East unfolds.