This post was written by Aaron Strutt, product director at Trinity Financial. Please note: figures are likely to change quickly in this turbulent market.
Banks and building societies have been consistently increasing their mortgage rates following the war in Iran and the escalation of conflicts across the Middle East.
Higher inflation fears and global insecurity have pushed up funding costs in the money markets, with a knock-on effect on UK mortgage rates. The sub-4% fixes that have been really popular with homebuyers over the last few months have been pulled, and only a few sub-4% tracker mortgages are still available.
Mortgage lenders are telling us that pricing fixed rates in this sort of environment is a "logistical nightmare as trying to fund and hedge positions when it’s unclear what the direction of travel is for rates makes things very challenging."
Santander is the latest big bank to increase its rates, which means its fixes will have gone up by 0.65% in just a few days, and more mortgage lenders are expected to raise their rates again soon. A huge number of mortgage applications have been submitted as brokers rush to secure their clients the cheap deals before they go up, and some lenders have potentially received a week’s worth of business in a day or two, which means their service standards are slipping. Recent figures from Santander show that 89% of mortgages for property purchases were arranged through a broker so far this year, up 3% from 2024.
Are there many cheap mortgage rates left?
While there have been many rate increases, there are still some competitively priced mortgages to choose from. HSBC has a two-year fix from just over 4%, and Barclays has two-year fixes from 4.10%. The best five-year fixes are priced just over 4.2%.
Most of the big banks have increased their mortgage rates two or three times recently. TSB made the biggest price hikes seen so far by raising all of its rates by 0.5% less than 24 hours before its new, more expensive rates became available. According to Moneyfacts data, 472 residential mortgage products were withdrawn in just 48 hours, representing around 6.5% of the market. The average mortgage rate is also only likely to remain available for around a week at the moment, and most banks and building societies are giving very little notice before raising their prices. Twenty7tec data also showed nearly 10,000 mortgage product changes in just a few days.
What do borrowers need to know, and what should they do?
Rates are likely to increase more so if you find a good mortgage, try and secure the rate. Get the best fixed rate based on your short- or long-term goals, or take a flexible tracker rate, or a switch-to-fix rate tracker with no early repayment charges if you are not sure whether you will move home or your situation will change in the near term.
For borrowers, the practical effect is simple enough: the cheapest deals can disappear overnight, which makes it important to act quickly if you need a mortgage. If you take too long to send your forms back to your broker or put off choosing a rate or delay checking the market, you could end up paying a significantly higher rate.
Is it possible to book a mortgage rate?
Even in a rising market, it is often possible to secure a mortgage rate well before you find a property, complete a purchase or before your current mortgage deal ends. Nationwide Building Society, for example, allows Decisions in Principle to last for around 90 days, and once fully approved, mortgage offers can remain valid for around 180 days. Trinity Financial’s brokers have been booking rates for clients.
For remortgages, many lenders allow applications up to six months before the current deal expires. Mortgage lenders also allow their existing customers to book a rate switch up to four months before their fixed rates expire.
Will the Bank of England base rate still come down?
The Bank of England base rate has just been held at 3.75% in a widely expected move. Many people will be hoping the base rate is cut to boost the economy. Even with the ongoing wars, our economy needs to grow, but we are clearly being affected by global issues. The conflict in Iran could push inflation as high as 3.5% in July, up from the current 3% level, the Bank of England has said. The Liberal Democrats blamed “Trump-flation” for today's interest rate decision, arguing the US president had forced the Bank of England’s hand.
The money markets seem to be predicting the Bank of England will have to raise interest rates rather than cut them this year due to a surge in oil prices sparked by the ongoing hostilities between the US, Israel, and Iran. Although it is too soon to tell what is going to happen, it will be an interesting few months, that’s for sure.
So where does this leave the market now?
In a market like this, early planning and taking action can save money, preserve choice and remove a lot of unnecessary stress. Over the last few years, we have seen fixed rates rise and fall, and no doubt this will happen again. The difference this time is that the lenders still have their much-improved acceptance criteria and lots of income-stretch mortgages, but rather than Liz Truss reversing her mini-budget or the Covid pandemic coming under control, we need Donald Trump to have a good plan to bring peace back to the Middle East. Rates are not that expensive, but the war needs to stop soon to halt the price hikes.
