Mortgage rates rise for first time in months following resurgence of conflict in the Middle East

Hundreds of thousands of households coming to the end of a fixed deal charging less than 3% must brace themselves for higher monthly repayments.

Months of positive momentum in the mortgage market came to a grinding halt at the start of August as average fixed rates rose for the first time since April, according to the latest Moneyfacts UK Mortgage Trends Treasury Report.

It found the typical rates charged by two- and five-year fixed deals jumped from 5.52% to 5.63% and 5.66%, respectively, month-on-month. Meanwhile, the Moneyfacts Average New Mortgage Rate^* climbed by 0.12 percentage points over the same timeframe to return to 5.59% - completely counteracting progress made throughout June.

“Lenders were somewhat forced to U-turn on fixed rate cuts in July,” remarked Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

“Persistent concerns over the future outlook of interest rates led to swap rate volatility,” she explained, adding that this was fuelled by the recent reescalation of tensions in the Middle East. “The prolonged conflict has driven up oil and energy prices, raising inflationary fears which could in turn lead to future Base Rate increases by the Bank of England,” Springall continued.

With swap rates one of the most influential factors behind fixed mortgage pricing, it should come as little surprise that lenders acted quickly to reprice their product ranges in response to the unrest. As a result, the average amount of time a deal spent on the market (i.e. its shelf-life) fell from 14 days in July to 11 days at the beginning of this month – its shortest since reaching a record low of eight days in April.

“The limited timeframe makes it ever more essential to seek advice early, particularly those who are due to remortgage this year,” urged Springall.

Are you one of thousands currently paying less than 3%?

Nearly 750,000 households paying less than 3% are set to come to the end of a fixed deal this year and can expect to see their repayments rise by £170 per month, on average, according to the Bank of England.

But, Springall warned those tempted to wait for mortgage rates to fall before locking into a new fixed deal that this could be “an expensive mistake”, as the average Standard Variable Rate (or ‘revert rate’) held steady at an eye-watering 7.13% in August. This works out at roughly £230 more per month than a typical two-year fixed deal priced at 5.63% (based on a £250,000 mortgage repaid over 25 years) - and there’s no telling how long it could take for interest rates to drop substantially.

In the meantime, borrowers could speak to a mortgage broker for help finding the most cost-effective option for their circumstances. Alternatively, those worried about being able to meet their mortgage repayments would be wise to contact their lender as soon as possible.

Silver lining as product choice continues to recover

Encouragingly, borrowers looking for a mortgage have more options to consider, as product choice continued to improve for a fourth consecutive month. There were over 7,350 deals on the market at the start of August – meaning 90% of those withdrawn earlier in the year (between March and April) have now returned.

“This includes increased choice across selected higher loan-to-value tiers, such as at 95% and 90% LTV,” Springall highlighted. However, she added that “there is always more room for improvement to the choice of deals in this sector, especially to draw in new business from first-time buyers, who remain the lifeblood of the mortgage market”.

Yet, those wanting to join the property ladder with a 5% or 10% deposit currently must contend with average fixed rates of around 6% or more.

“After a significantly volatile few months, it will be vital for lenders to tailor their ranges to cater to demand and support existing customers, such as tweaking affordability criteria or offering upfront cost-saving packages,” Springall concluded.

Should I speak to a mortgage broker?

Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.

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