Borrowers who need to secure a new mortgage product immediately will pay noticeably more after several leading UK lenders raised rates on fresh offers in recent days. Analysts warn a household whose five-year fixed deal is ending could face in excess of £5,000 more a year on a replacement mortgage if it borrows the same amount under a typical rate.
Moneyfacts data show the market has moved sharply since early March, when US-Israeli strikes began. A household taking a typical two-year fix on a £250,000 loan would now pay about £120 extra each month compared with that same deal priced at the start of March. As of Tuesday, Moneyfacts reported the average new two-year mortgage rate at 5.65% and the average five-year product at 5.70%.
The price moves reflect wider forces. Analysts link the rises to global uncertainty since the outbreak of war in Iran and to rising UK government borrowing costs, a trend reinforced by the latest gilt sale on Tuesday. Bank of England governor Andrew Bailey is expected to be asked about the bond market upheaval when he appears before the Treasury Committee later on Tuesday.
Industry figures warn the immediate effect is to force choices. Several lenders allow customers to lock a rate up to six months before their current fixed term expires and then switch if better offers appear before the new deal begins. "Borrowers expecting mortgage rates to drop in the coming weeks have had their hopes dashed," said Rachel Springall of Moneyfacts. Brokers and advisers are urging anyone who needs a replacement product to seek guidance promptly and weigh the risk of securing a deal now against possible future falls.
Market participants also point to a structural vulnerability: a higher share of mortgages are being written with smaller deposits. The proportion of loans with borrowing above 90% of a home's value has reached its highest level in 18 years, leaving more households exposed to even modest rate increases. "The difficult bit is knowing whether this is the end or just the first round of increases," said David Hollingworth of broker L&C. Aaron Strutt of Trinity Financial added, "Hopefully this will be the end of the rate rises for a while, but there are certainly no guarantees. Multiple small mortgage price rises add up and ultimately deter people from buying homes."
