UK average mortgage rates have climbed back to levels last seen a month ago, driven by renewed instability in the Middle East that is pushing up lenders' funding costs. The cost of borrowing has risen as markets judge that a prolonged conflict between Iran and the US, combined with Houthi militia attacks on oil tankers in the Red Sea, reduces the chance of interest rate cuts by central banks.
Oil prices hit $100 a barrel for the first time since May on Thursday after several days of increases, stoking fears of higher inflation and making rate cuts less likely. The five biggest High Street banks are among a host of lenders that have increased their interest rates on new fixed deals in recent days.
“UK average mortgage rates hit one-month high as Middle East conflict pushes up lenders' costs and oil tops $100/barrel.”
According to financial information service Moneyfacts, the average rate on a new two-year fixed deal now stands at 5.58%, having risen consistently in recent days. Although it remains below the April peak of 5.9% during the Iran war, the upward trend has erased recent falls that followed an initial ceasefire between the US and Iran.
The average rate on a five-year fixed deal is 5.6%. More than eight in 10 mortgage customers have fixed-rate deals, meaning their interest rate does not change until the deal expires, usually after two or five years. However, recent projections by the Bank of England suggest that just over five million homeowners should expect their monthly mortgage repayments to increase by the end of 2028.
Rachel Springall, finance expert at Moneyfacts, described the situation as "incredibly frustrating for borrowers" who had seen rates rise back 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," she said. She noted that 100 deals had been pulled temporarily as lenders reconsider their pricing plans.
Springall advised anyone needing to remortgage this year to lock in a new deal now with their existing lender ahead of time, but also to seek help from a broker to see whether better deals are available elsewhere. "Brokers are an anchor during turbulent times," she said.
With oil prices continuing to climb and geopolitical tensions unresolved, UK homeowners face an uncertain path ahead, wondering when — or if — rates will stabilise.