Mortgage Rates Surge as Middle East Conflict Fuels Inflation Fears

Mortgage rates have experienced their largest daily increase since early April, driven by escalating conflict in the Middle East and the resulting fears of renewed inflation. Five mortgage lenders raised their pricing within a 24-hour period, impacting both new home buyers and those looking to remortgage.

The typical two-year fixed mortgage rate has climbed to 5.54 percent, up from 5.5 percent, while five-year fixes have risen to 5.57 percent from 5.52 percent, according to Moneyfacts. This marks the biggest daily jump in mortgage rates since the conflict in Iran first intensified.

Lenders are responding to concerns that geopolitical instability, particularly disruptions to oil and gas supplies in the Strait of Hormuz, could lead to a spike in energy costs and other household expenses. This uncertainty has already affected government bond yields and swap rates, which are key components in setting fixed mortgage costs.

Santander will increase rates for home buyers and those remortgaging by up to 0.3 basis points, following similar increases from Barclays, TSB, Halifax, and HSBC in the preceding day. Nicholas Mendes, a broker at John Charcol, noted that a 0.2 basis point increase on a £200,000 mortgage over 25 years adds approximately £23 per month, or £276 annually. For a £300,000 mortgage, the increase is closer to £35 per month, or nearly £420 per year.

"It's not a dramatic jump on its own, but it's the third or fourth such move in a matter of weeks, and each one stacks on the last for anyone still shopping around," Mendes stated.

Nationwide and Virgin Money were among the initial lenders to raise rates last week following news of intensified conflict in the region. Prior to this recent uptick, mortgage rates had been steadily decreasing for several months, a trend that began in March as the Middle East situation appeared to stabilize.

Experts anticipate further rate increases in the coming days. For borrowers needing to remortgage, who can typically lock in a rate up to six months before their current deal ends, it is advisable to consult with lenders or brokers promptly. It is usually possible to switch to a lower rate if they become available before the new mortgage begins.

"For borrowers, it’s a reminder that mortgage pricing can change quickly. Waiting in the hope of securing a slightly lower rate can sometimes have the opposite effect if market conditions move against you," said Stephen Perkins, managing director at Yellow Brick Mortgages.

Borrowers seeking payment certainty may consider longer-term fixed rates, such as ten or fifteen-year deals, though these often come with higher rates. Some specialist lenders even offer fixes for the entire mortgage term, potentially 25 to 40 years. However, the volatile nature of rates means longer-term fixes could result in paying more than necessary if rates fall in the future. Most long-term fixed deals also include significant exit fees.

Jamie Elvin, director at Strive Mortgages, commented that while ten-year fixes offer payment certainty, two or five-year deals remain more appropriate for most individuals, emphasizing that the best choice depends on personal circumstances rather than market prediction.