Two of the largest mortgage lenders in the UK are planning to raise mortgage rates, signaling the impact of the recent Middle East conflict on borrowers. HSBC will implement the rate increase for fixed-rate home loans starting today, while Coventry Building Society will follow suit from Monday.
Although specific details are yet to be finalized, experts anticipate that other lenders will likely follow suit, affecting individuals seeking new home loans or looking to refinance. This development arises as lenders react to the threat of rising inflation due to the conflict between the US, Israel, and Iran.
The pricing of fixed-rate mortgages is influenced by swap rates, which represent the cost for lenders to secure fixed funding from institutions. These swap rates surged following the conflict outbreak last Friday. Additionally, the Bank of England is expected to postpone an anticipated interest rate cut later this month.
David Hollingworth, associate director at broker L&C Mortgages, explained that the Middle East conflict has heightened market expectations of inflation, leading to a pause or delay in rate cuts. This situation results in increased costs for lenders when setting fixed-rate mortgage prices, prompting a chain reaction of rate adjustments across the industry.
Industry experts at Moneyfacts reported that the average two-year fixed residential mortgage rate rose to 4.83%, with the average five-year fixed rate reaching 4.95%. Adam French, head of consumer finance at Moneyfacts, highlighted the sharp increase in swap rates due to the escalating conflict in the Middle East, impacting oil and gas prices and reigniting concerns about inflation.
The fluctuation in swap rates has prompted some lenders to reconsider planned rate reductions, affecting the recent trend towards lower mortgage rates. Global geopolitical events, such as the current conflict, play a significant role in shaping mortgage costs, emphasizing the interconnectedness of global events and financial markets in determining borrowing conditions.