UK Lenders Raise Mortgage Rates Amid Inflation Fears

Two major UK lenders, Santander and Halifax, have increased their mortgage rates in the lead-up to the Bank of England's upcoming interest rate decision. Santander is raising rates on a significant portion of its fixed-rate deals by 0.15 to 0.19 percentage points, while Halifax has increased rates for home movers and first-time buyers by 0.15 percentage points and by 0.2 percentage points for remortgage deals.

These adjustments come amid renewed tensions between the U.S. and Iran, which have sparked concerns about rising inflation. The increase in oil and gas prices due to Middle East conflict is a primary driver of these inflation fears. Lenders are responding by increasing their prices to mitigate potential future costs.

The Bank of England is set to announce its decision on the base rate on Thursday. It is widely anticipated that the bank will hold the rate at 3.75 percent, maintaining its current stance aimed at curbing inflation. However, the ongoing geopolitical situation and its impact on energy prices continue to pose a risk of inflation spikes.

Swap rates, which are used by banks to price fixed-rate mortgages, remain above 4 percent. Five-year swap rates reached 4.23 percent recently, an increase from 3.97 percent a month prior. The average two-year fixed mortgage rate is now 5.62 percent, and the average five-year rate stands at 5.64 percent, according to Moneyfacts. This marks a significant rise from just two weeks ago when the cheapest two-year fix was 4.19 percent and the lowest five-year fix was 4.31 percent.

Mortgage brokers advise that borrowers considering a remortgage or property purchase in the next six months should consult a broker promptly. Experts suggest that mortgage rates are unlikely to see a sustained decrease until the conflict in the Middle East is resolved, as market participants remain increasingly nervous about inflation. This nervousness is directly impacting borrowers through higher mortgage costs.