Average UK mortgage rates have climbed to their highest level in a month as renewed conflict in the Middle East drives up lenders’ funding costs and weakens expectations of future interest rate cuts.
The increase follows a rise in global oil prices after fresh military strikes and Houthi attacks on oil tankers in the Red Sea reignited concerns over energy supplies and inflation.
The UK’s five largest High Street banks are among a growing number of lenders that have increased interest rates on new fixed-rate mortgage deals in recent days, with HSBC set to raise its rates on Monday.
According to the Bank of England, more than five million homeowners are expected to see their monthly mortgage repayments increase by the end of 2028.
Mortgage rates had been falling during June and early July as a ceasefire between the US and Iran initially eased market concerns. However, the renewed instability has reversed that trend.
The average interest rate on a new two-year fixed mortgage has risen to 5.59%, according to Moneyfacts. Although this is the highest level since 19 June, it remains below the peak of 5.9% recorded during the Iran conflict in April.
The average five-year fixed mortgage rate has also increased to 5.61%, its highest level since 7 June.
Rachel Springall, finance expert at Moneyfacts, said: “It will be incredibly frustrating for borrowers to see rates rise back up to where they were a month ago. The positive progress over recent weeks now feels all but lost, but what the market needs is a period of stability.”
She revealed that around 100 mortgage products had been temporarily withdrawn as lenders reviewed their pricing strategies.
Springall advised borrowers planning to remortgage this year to consider securing a deal with their current lender while also exploring alternative offers through a mortgage broker.
“Brokers are an anchor during turbulent times as they can help borrowers keep abreast of changes and be there step by step when going through a mortgage application.”
More than 80% of UK mortgage holders are on fixed-rate deals, meaning their monthly repayments remain unchanged until their current agreement expires, typically after two or five years.
Mortgage experts say the latest increases highlight the uncertainty facing the housing market.
David Hollingworth of L&C Mortgages said: “Any borrower hoping for rate cuts to become an ongoing trend will need to rethink.”
“Momentum has performed an about turn and now clearly shifted to fixed rates rising in the near term at least.”