Mortgage fears as lenders hike rates amid Middle East war fall-out
Experts have urged anyone looking for a mortgage to consider acting fast following the risk that the cost of deals is rising
Two of Britain’s biggest mortgage lenders are set to hike mortgage rates in the first major sign of the fall-out from the Middle East conflict on borrowers.
HSBC will increase the cost of fixed rate home loans from today Friday, and Coventry Building Society from Monday.
Exact details have yet to be confirmed. Experts warn other lenders are expected to follow suit, in a blow to those looking to take out a new home loan or needing to remortgage.
The setback comes as lenders scramble to respond to the threat of higher inflation on the back of the US and Israel’s war with Iran.
The cost of fixed rate mortgages is determined by what are called swap rates, or how much lenders pay to institutions in return for fixed funding.
Those swap rates have jumped on the back of the conflict which erupted last Friday. To make matters worse, the Bank of England is expected to shelve what had been an expected interest rate cut later this month.
David Hollingworth, associate director at broker L&C Mortgages, said: “The conflict in the Middle East has led to market expectation of higher inflationary pressure causing rate cuts to be slowed or put on hold.
“That pushes up the cost for lenders when pricing their fixed rate mortgages, which can force rates higher. Once we enter this cycle of lenders adjusting their rates, we know that it almost invariably results in others following suit.
“The current uncertainty means that this upward pressure doesn’t look likely to ease quickly, although there are signs that the market reaction is at least levelling off for now.
“In the short term it’s likely that these increases will not see mortgage costs rocket but it does look like the improvements made in recent weeks could unwind quickly.
“With such an unpredictable backdrop those borrowers that are considering a new fixed rate deal at the moment should be looking to secure the rate sooner rather than later.”
Industry experts Moneyfacts said the average two-year fixed residential mortgage rate had risen to 4.83%, with average five-year fix increasing to 4.95%.
Adam French, head of consumer finance at Moneyfacts, said: “Swap rates have been rising sharply as conflict with Iran spreads across the Middle East, driving oil and gas prices higher and reigniting inflation concerns.
“The immediate consequence has been higher gilt yields and a rapid shift in interest rate expectations, with the prospect of a Bank of England base rate cut later this month now looking far less certain.
“For the mortgage market, the impact is almost instantaneous. Some lenders have already paused or reconsidered planned rate reductions.
“Because fixed mortgage pricing is closely linked to swap rates, this sudden market movement risks halting the recent momentum towards lower mortgage rates just as borrower confidence had begun to build ahead of an anticipated rate cut.
“It serves as a stark reminder that mortgage costs are not driven solely by domestic policy decisions. Global geopolitical events move markets, markets move swap rates, and swap rates ultimately shape the deals available to borrowers – all while the world watches deeply troubling events unfold.”