- Average UK mortgage rates have climbed back to their highest level in a month.
- Renewed Middle East tensions have pushed up oil prices and lenders' funding costs.
- More than five million homeowners are expected to see higher mortgage repayments by the end of 2028.
A conflict unfolding thousands of miles from Britain is once again being felt much closer to home. UK mortgage rates have climbed back to their highest level in a month after renewed tensions in the Middle East pushed up oil prices, raising concerns that interest rates could stay higher for longer.
Several major lenders, including the UK's five biggest High Street banks, have increased rates on new fixed-rate mortgage deals in recent days. The move reverses weeks of gradual declines that had given borrowers hope that mortgage costs were finally beginning to ease.
According to financial information provider Moneyfacts, the average two-year fixed mortgage rate has risen to 5.58 per cent, while the average five-year fixed rate now stands at 5.6 per cent. Although both remain below the peak reached during the Iran conflict in April, they have returned to levels last seen about a month ago.
Why events in the Middle East matter to UK homeowners
Mortgage rates do not move solely because of decisions by the Bank of England. They are also influenced by financial markets and lenders' borrowing costs.
Markets had become more optimistic after a ceasefire between the US and Iran appeared to hold. However, renewed military strikes and Houthi attacks on oil tankers in the Red Sea have fuelled fresh concerns over global energy supplies.
Those concerns have pushed oil prices to $100 a barrel for the first time since May. Higher oil prices can add to inflation, making central banks less likely to reduce interest rates in the near future. As expectations for future rate cuts weaken, lenders' funding costs rise, often leading to higher mortgage rates for borrowers.
Rachel Springall, finance expert at Moneyfacts, reportedly said it would be frustrating for borrowers to see mortgage rates return to where they were a month ago after recent improvements. She also noted that around 100 mortgage products had been temporarily withdrawn as lenders reviewed their pricing, as quoted in a news report.
Springall reportedly advised borrowers planning to remortgage this year to consider securing a deal with their existing lender while also comparing offers through a mortgage broker, as quoted in a news report.
Borrowers may need to rethink expectations
More than eight in 10 mortgage customers are on fixed-rate deals, meaning their monthly repayments remain unchanged until their current agreement expires. However, those coming to the end of two or five-year fixed terms could face higher borrowing costs when arranging a new mortgage.
The Bank of England has projected that just over five million homeowners are likely to see their monthly mortgage repayments increase by the end of 2028 as older, lower-rate deals continue to expire.
Mortgage advisers say the latest changes underline how quickly global events can alter the outlook for UK borrowers.
David Hollingworth of L&C Mortgages reportedly said anyone expecting mortgage rates to continue falling may now need to rethink, adding that the recent momentum had shifted and fixed-rate mortgages were moving higher again, as quoted in a news report.
For homeowners, the latest rise is a reminder that mortgage costs are shaped by far more than domestic economic policy. Events affecting global energy markets can quickly influence inflation expectations, lenders' funding costs and, ultimately, the price of borrowing in the UK.
