Two major mortgage lenders in the UK are planning to increase mortgage rates, signaling the impact of the recent conflict in the Middle East on borrowers. HSBC will raise the rates on fixed-rate home loans starting today, while Coventry Building Society will follow suit from next Monday.
Although the exact details are not yet confirmed, experts are warning that other lenders are likely to follow suit. This development is a setback for individuals seeking new home loans or looking to remortgage.
The increase in mortgage costs is a response to the threat of higher inflation triggered by the conflict between the US, Israel, and Iran. Fixed-rate mortgages are influenced by swap rates, which are the payments lenders make to institutions in exchange for fixed funding.
Following the recent conflict escalation, swap rates have surged, prompting lenders to adjust their rates. Additionally, the Bank of England is expected to delay an anticipated interest rate cut.
David Hollingworth, associate director at broker L&C Mortgages, noted that the Middle East conflict has raised market expectations of higher inflation, leading to a slowdown in rate cuts. This situation results in lenders raising their fixed-rate mortgage prices, with a domino effect on other lenders.
Industry experts at Moneyfacts reported that the average two-year fixed residential mortgage rate has risen to 4.83%, with the average five-year fix now at 4.95%. Adam French, head of consumer finance at Moneyfacts, emphasized that the rise in swap rates due to the Middle East conflict has led to increased inflation concerns, impacting mortgage rates.
The sudden market movement risks halting the recent trend of lower mortgage rates, just as borrower confidence was growing in anticipation of a rate cut. This serves as a reminder that mortgage costs are influenced by global events, market movements, and swap rates, shaping the deals available to borrowers.