Mortgage interest rates have surged to a seven-month peak in the UK due to the aftermath of the Iran conflict, impacting borrowers. According to experts at Moneyfacts, the average two-year fixed-rate mortgage has exceeded 5% for the first time since last August, now standing at 5.01% after a rapid increase from 4.93% within a day. Similarly, the average five-year fixed-rate mortgage has also risen from 5.03% to 5.09%.
This sharp increase in rates is a response to the looming threat of higher inflation following the US and Israel’s conflict with Iran. Concurrently, consumers are facing escalating fuel prices as oil costs surge. While Brent crude prices have slightly decreased from their weekend peak, they remain significantly higher than pre-war levels, impacting petrol and diesel costs.
The repercussions of these developments are felt by motorists, with unleaded petrol prices rising to 139p per litre and diesel prices reaching 155.1p per litre. The continuing conflict has led to substantial increases in fuel costs, urging drivers to utilize resources like fuel price comparison apps to minimize expenses.
The surge in fixed-rate mortgages is influenced by rising swap rates, which have climbed sharply due to the ongoing crisis. Additionally, the Bank of England is anticipated to postpone an expected interest rate cut, further impacting borrowing costs for consumers. Approximately 1.2 million borrowers are set to see their fixed-rate deals expire between now and September.
Prior to the conflict escalation, the average two-year fixed-rate mortgage was at 4.83%, and the typical five-year fixed-rate was at 4.95%. This rise translates to an additional £19 per month, or £228 annually, for securing a two-year fixed-rate mortgage compared to pre-war levels. The availability of mortgage products has decreased significantly since the conflict began, with a notable reduction in options for borrowers.
Landlords are also facing escalating costs, impacting rental rates for tenants. The average two-year buy-to-let residential mortgage rate has surged from 4.66% to 4.74% in a single day. TSB, a leading bank, has announced considerable increases in mortgage rates in response to the uncertainty surrounding the Iran conflict.
Industry experts anticipate fluctuations in mortgage rates as lenders adjust to the evolving market conditions. The ongoing conflict in the Middle East is expected to play a significant role in determining the future trajectory of interest rates and borrowing costs for consumers.
Overall, the current scenario in the mortgage market reflects a period of turbulence, with lenders and borrowers navigating through uncertainties brought on by global events and market dynamics.