Mortgage lenders are raising rates in response to increased inflation expectations, driven by global bond market volatility and escalating geopolitical tensions in the Middle East. Barclays, Santander, Skipton, TSB, and The Nottingham Building Society have all announced increases to their fixed mortgage rates, many by approximately 0.15 percentage points. Coventry Building Society had previously raised rates on its entire fixed-rate mortgage range last week, and other lenders like NatWest and HSBC have also increased rates earlier this month.
The turmoil in the bond markets is linked to fears that a flare-up in the conflict between the U.S. and Iran could lead to rising inflation, prompting the Bank of England to consider increasing interest rates. The yield on 30-year government bonds, known as gilts, reached its highest level since 1998 last week, while ten-year gilts hit their highest point since 2008. This rise in gilt yields increases borrowing costs for banks, which are then passed on to consumers in the form of higher mortgage rates.
As of Friday, the average two-year fixed mortgage rate stood at 5.63 percent, up from 5.6 percent, and the average five-year rate increased to 5.68 percent from 5.64 percent, according to Moneyfacts. A 0.25 percentage point increase on a typical £250,000 mortgage over 25 years could add approximately £38 to monthly repayments, or £456 annually. The most competitive rates currently available for borrowers with significant equity are around 4.5 percent.
Experts advise borrowers to seek mortgage advice and secure deals as soon as possible, particularly those whose current fixed-rate deals are nearing expiration. Homeowners can typically secure a new deal up to six months before their current rate ends, with options to review and potentially change the product if rates improve before completion. This proactive approach can offer protection against further rate increases.
There are also concerns that the rise in mortgage rates could further dampen the already cooling property market. House prices have seen their first annual fall since 2023, with a 0.4 percent decrease according to Lloyds. Brokers suggest that higher mortgage rates are likely to slow the property market, especially in areas and sectors that are already experiencing challenges.