Borrowers’ hopes “dashed” as mortgage rate rises loom

After a month of relative calm in the mortgage market, September could spell misery for borrowers.

The first week of September has seen several lenders increase interest rates on their fixed mortgage products, which could signal the start of another upward trend in mortgage rates.

Swap rates, which influence fixed mortgage pricing, recently jumped higher after tensions between the US and Iran escalated once again. The renewed hostility pushed up oil prices and strengthened fears that inflation would remain higher for longer, all of which has prompted many lenders to hike interest rates.

Indeed, the average two-year fixed mortgage rate rose by 0.04 percentage points over the first week of September, reaching 5.63% on 7 September, its highest level since 10 August. Meanwhile, the average five-year fixed rate is now at its highest point since 11 May after increasing from 5.63% to 5.68% over the same period.

HSBC and NatWest are two of the biggest lenders to have raised rates this month, with more lenders expected to review their deals over the coming days as higher swap rates put pressure on their pricing margins.

“Mortgage rates are rising due to the escalating military conflict between the US and Iran, reigniting inflationary fears,” Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, explained.

“The UK 10-year gilt yield has also risen further above 5% to an 18-year high recently due to a global bond sell-off, adding further pressure to the wholesale funding costs that underpin fixed mortgage pricing,” she continued.

Will mortgage rates continue climbing?

With swap rates much higher than they were one month ago, Springall notes that “it would be unwise [for lenders] to price their deals too low”. As a result, it seems likely that mortgage rates will rise, at least over the short term.

While this may be disappointing news for borrowers, Springall points out that the latest hit to the mortgage market “pales in comparison to when the conflict in the Middle East began around six months ago” which saw many lenders pull their fixed deals from the market.

By contrast, only a couple of lenders, such as Family Building Society, have withdrawn their fixed deals over the past week.

It remains to be seen whether this will be a temporary uptick in mortgage rates or the start of a more sustained climb as the situation in the UK and across the world can quickly change. The past six months have shown how volatile the mortgage market can be, so the direction of rates will depend on many different factors, including how the conflict in the Middle East evolves and what impact it has on the UK and its economy.

“Borrowers expecting mortgages rates to drop in the coming weeks have had their hopes dashed,” Springall commented.

And there may be more bad news to come for borrowers as she notes that “the prolonged conflict increases the chances for the Monetary Policy Committee (MPC) to vote for an increase to the Bank of England base rate” in 2026.

Although this may not happen when the MPC next announces its decision on 17 September, several economists think a rise to the base rate could be on the cards in November.

Navigating the mortgage maze

Faced with the prospect of elevated mortgage rates, homeowners who are coming to the end of a fixed deal may need to prepare for higher monthly repayments.

For example, an increase of 0.25 percentage points on a typical two-year fixed rate mortgage would add around £38 to its monthly repayments, or £456 per year. *

Nevertheless, Springall comments that it’s still wise for borrowers to secure a fixed rate instead of falling onto a lender’s revert rate once their current deal expires, as this could save them around £230 per month in repayments. ^

Whether you’re planning to remortgage, move home or take your first steps on the property ladder, it can be useful to speak to a mortgage broker, particularly when the market is changing relatively quickly.

A broker can help you to navigate the deals on offer and find the right option for you, based on your individual situation and preferences.

Speak to an award-winning mortgage broker today

_{* Based on a rate of 5.63%, rising to 5.88% - borrowing £250,000 over 25 years.}

_{^ Average standard variable rate (SVR) is currently 7.13%. Calculations based on a £250,000 mortgage over a 25-year term on a repayment basis. SVR repayment £1,787 per month, versus £1,555 per month on 5.63% two-year fixed rate.}