UK Mortgage Rates Rise as Lenders Adjust Amid Inflation Fears

Two major UK lenders, Santander and Halifax, have raised their mortgage rates, signaling a shift in borrowing costs for homeowners and prospective buyers. The adjustments come just ahead of the Bank of England's scheduled interest rate decision on Thursday, which is expected to maintain the current base rate of 3.75%.

Santander is increasing rates on a significant portion of its fixed-rate deals by 0.15 to 0.19 percentage points. Halifax has also implemented rate hikes, with home mover and first-time buyer rates rising by 0.15 percentage points and remortgage deals increasing by 0.2 percentage points.

These increases are reportedly influenced by renewed tensions between the U.S. and Iran, which have fueled concerns about potential inflation spikes. Higher oil and gas prices, stemming from the Middle East conflict, are a key factor contributing to these inflationary fears.

Financial markets closely watch the Bank of England's base rate as it influences how banks price their mortgages. While the Bank is widely expected to hold the rate steady, the prevailing market conditions suggest that higher borrowing costs may persist.

Inter-bank lending rates, known as Sonia swap rates, remain above 4%, with five-year swaps reaching 4.23% recently, up from 3.97% a month prior. This has led to an increase in average mortgage rates; the current average two-year fixed rate stands at 5.62%, and the average five-year rate is 5.64%. For borrowers with substantial deposits and strong credit histories, the most competitive rates are around 4.5%, a notable increase from two weeks ago when the cheapest two-year fix was 4.19% and the lowest five-year fix was 4.31%.

Industry experts advise that borrowers considering a mortgage renewal or purchase within the next six months should consult with a broker promptly. The current market environment suggests that sustained decreases in mortgage rates are unlikely until geopolitical tensions in the Middle East subside and their impact on oil prices, and consequently inflation, lessens. Lenders and markets are increasingly wary of inflation, which is now translating into higher mortgage rates for consumers.