Several prominent mortgage lenders have raised their interest rates, citing turmoil in the bond markets stemming from an escalation of conflict in Iran. Barclays, Santander, Skipton, TSB, and The Nottingham Building Society are among the institutions that have announced increases, primarily affecting fixed-rate mortgages, with hikes often around 0.15 percentage points.
This move follows similar rate increases by Coventry Building Society last week on its entire fixed-rate mortgage range. NatWest and HSBC also raised rates earlier in September. Experts anticipate further increases in the coming weeks.
The bond market turbulence is linked to concerns that inflation may rise due to increased geopolitical tensions between the U.S. and Iran. The yield on 30-year gilts reached a high not seen since 1998 at 5.94 percent last week, while ten-year gilts hit a post-2008 financial crisis high of 5.26 percent. This surge in yields reflects heightened expectations that the Bank of England might increase its base rate, prompting investors to demand higher returns for holding bonds.
Higher gilt yields increase borrowing costs for banks, which they subsequently pass on to consumers through higher mortgage rates. Currently, the average two-year fixed mortgage rate stands at 5.63 percent, up from 5.6 percent on Friday, according to Moneyfacts. The average five-year rate has also risen to 5.68 percent from 5.64 percent.
For a typical borrower with a £250,000 mortgage over 25 years, a 0.25 percentage point increase on a two-year fixed rate from 5.63 percent to 5.88 percent would add approximately £38 to monthly repayments, amounting to £456 annually. The most competitive rates for borrowers with substantial equity are currently around 4.5 percent.
"Borrowers expecting mortgage rates to drop in the coming weeks have had their hopes dashed," said Rachel Springall of Moneyfacts. She added that the prolonged conflict increases the likelihood of the Monetary Policy Committee voting to raise the Bank of England Base Rate, possibly by November according to some economists. "Regardless of any changes to the base rate, it is still essential borrowers do not delay seeking advice to navigate the mortgage maze."
Nicholas Mendes, mortgage technical manager at John Charcol, advised homeowners needing to remortgage within the next six months to secure a deal promptly. He noted that it's typically possible to arrange this up to six months in advance and to switch to a different rate if market conditions improve. "Having a deal in place gives protection if pricing moves further against you, and if rates improve before completion there is often still the opportunity to review the product again," Mendes stated.
These rising mortgage rates could further dampen the already cooling property market. Recent figures from Lloyds indicate that house prices have recorded their first annual fall since 2023, decreasing by 0.4 percent. Justin Moy, managing director at broker EHF Mortgages, commented, "Higher mortgage rates will always slow the property market, especially when certain sectors and locations in the UK are already struggling."