The average cost of a new two-year fixed mortgage in the UK has climbed back to 5.59%, wiping out weeks of falls and returning to its highest level since 19 June, as renewed conflict in the Middle East pushes up lenders’ funding costs and sends oil prices surging.
Fresh strikes and Houthi attacks on oil tankers in the Red Sea have reignited fears over global energy supplies, driving Brent crude above $100 a barrel for the first time since May. Markets now judge that a prolonged conflict reduces the likelihood of interest rate cuts by central banks, making it more expensive for lenders to raise money.
“UK average two-year fixed mortgage rate rises to 5.59%, highest since June, as Middle East tensions push oil above $100.”
Five of Britain’s biggest High Street banks are among those that have raised rates on new fixed deals in recent days. HSBC has announced it will increase its mortgage rates on Monday. The average five-year fixed deal now stands at 5.61%, a level last seen on 7 June.
“It will be incredibly frustrating for borrowers to see rates rise back up to where they were a month ago. The positive progress over recent weeks now feels all but lost, but what the market needs is a period of stability,” said Rachel Springall, finance expert at Moneyfacts. She added that about 100 deals had been temporarily pulled as lenders reconsider their pricing plans.
The Bank of England has projected that just over five million homeowners should expect their monthly mortgage repayments to increase by the end of 2028. More than eight in 10 mortgage customers have fixed-rate deals, meaning their payments remain unchanged until the deal expires and they must shop for a new one.
Although the current average two-year rate is still below the Iran war peak of 5.9% in April, the upward trend is a blow to those hoping for sustained relief. Springall suggested that anyone needing to remortgage this year could lock in a new deal now with their existing lender ahead of time to avoid being caught by further rises.
With oil prices continuing to climb and geopolitical tensions unresolved, the path ahead for borrowers remains uncertain. The recent respite in mortgage costs has evaporated, and the stability Springall calls for is nowhere in sight.