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Average mortgage rates in the UK have climbed back to levels seen about a month ago, influenced by renewed unrest in the Middle East. This geopolitical tension has led to an increase in lenders’ funding costs, as financial markets now view a prolonged conflict as diminishing the chances that central banks will reduce interest rates in the near term. Consequently, several major High Street banks, along with many other lenders, have recently raised interest rates on new fixed mortgage deals.
According to a recent projection from the Bank of England, just over five million homeowners may face higher monthly mortgage payments by the end of 2028. Earlier, mortgage rates had eased somewhat as hopes grew that a ceasefire between the US and Iran would hold. However, this calm has been disturbed by new missile strikes and attacks by Houthi militias on oil tankers in the Red Sea, reigniting concerns about global energy supply stability. Oil prices surged past $100 a barrel for the first time since May, heightening inflation fears and reducing expectations of forthcoming interest rate cuts.
Over 80% of mortgage holders currently have fixed-rate deals, which generally lock in their payments for period of two to five years. The average rate for a new two-year fixed mortgage now stands at 5.58%, a rise in recent days, although it remains below the 5.9% peak observed during the Iran war in April. For five-year fixes, the average is slightly higher at 5.6%.
Rachel Springall, a finance expert at Moneyfacts, commented on the situation: “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 She also noted that about 100 mortgage deals have been temporarily withdrawn as lenders reassess their pricing. Springall advised those needing to remortgage this year to consider locking in a new deal with their current lender ahead of time while also consulting a broker to explore better options. David Hollingworth from L&C Mortgages echoed this caution, stating that any hopes for ongoing rate reductions should be reconsidered, as the trend has clearly shifted toward rising fixed mortgage rates in the near future
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