Middle East Conflict: Lenders Raise Mortgage Rates in UK

LONDON July 25: Mortgage rates in the UK are on the rise again. Average mortgage rates have risen in the UK, worrying homeowners and homebuyers. Rates have returned to levels a month ago as tensions in the Middle East have resumed.

The possibility of central banks cutting interest rates is largely closed as the conflict is likely to prolong. As a result, the costs of the lenders will increase. This is reflected in mortgage rates.

The UK’s top five banks have also increased interest rates on fixed deals in recent days. More than five million homeowners should expect their monthly mortgage payments to increase by the end of 2028, according to the Bank of England.

Mortgage rates have been falling since the announcement of a ceasefire between the US and Iran. But the latest attacks, coupled with Houthi militants attacking oil tankers in the Red Sea, have raised fears that they could trigger another global fuel crisis.

More than 80% of UK mortgage customers are currently on fixed-rate deals, meaning their monthly payments remain unchanged until their mortgage term ends, typically after two or five years. However, borrowers needing a new deal are now facing higher rates.

According to financial information provider Moneyfacts, the average rate for a new two-year fixed mortgage has risen to 5.59%. While this is the highest level since 19 June, it remains below the peak of 5.9% recorded during the height of market concerns over the Iran conflict in April.

The average five-year fixed mortgage rate has also increased to 5.61%, a level not seen since early June.

HSBC has confirmed it will raise its mortgage rates from Monday, joining a number of lenders adjusting their pricing in response to changing market conditions.

Rachel Springall, a finance expert at Moneyfacts, said the latest increases would be disappointing for borrowers who had been encouraged by falling rates in recent weeks.

“It will be incredibly frustrating for borrowers to see rates rise back up to where they were a month ago,” she said, adding that the recent progress had been reversed and that markets now needed a period of stability.

Moneyfacts reported that around 100 mortgage deals had temporarily been withdrawn as lenders reviewed their pricing strategies.

Springall advised homeowners who need to remortgage later this year to consider securing a new deal early with their current lender, while also speaking to a mortgage broker to compare available options.

She said brokers could provide valuable support during uncertain periods by helping borrowers navigate changing rates and the mortgage application process.

The price of oil has reached $100 per barrel, pushing the markets into panic. This is expected to lead to higher inflation and eliminate the possibility of interest rate cuts.

Markets are worried that interest rates will remain high for more months. Earlier, the market had expected a rate hike in the wake of the Iran war. Higher costs await consumers this year in the wake of the Middle East conflict.