British homeowners and business owners hoping for cheaper borrowing costs this summer have faced a setback as average UK mortgage rates climb back to levels last seen a month ago.
The rise has been linked to renewed tensions in the Middle East, which have pushed up oil prices and increased concerns about inflation. Financial markets now expect prolonged conflict to make central banks less likely to cut interest rates soon.
The UK’s five largest High Street banks are among lenders that have increased rates on new fixed-rate mortgage deals in recent days.
Oil prices have been a key driver of the shift. Prices reached $100 a barrel on Thursday for the first time since May after fresh strikes and attacks by Houthi rebels on oil tankers in the Red Sea raised concerns about global energy supplies.
Mortgage rates had been declining while a ceasefire between the US and Iran appeared to be holding. That optimism has since faded, causing lenders’ funding costs to rise.
The impact is being felt beyond residential mortgages. Many small and medium-sized business owners use personal property to support business finance or hold residential and buy-to-let mortgages alongside commercial loans.
The swap rates that influence fixed mortgage pricing also affect asset finance, overdrafts and commercial lending. A rise in those costs can therefore increase pressure on businesses already dealing with weaker demand and high operating expenses.
According to financial information service Moneyfacts, the average rate on a new two-year fixed mortgage has risen to 5.59%, the highest level since June 19. The figure remains below the April peak of 5.9%.
The average five-year fixed rate now stands at 5.61%, a level last recorded on June 7. HSBC has also said it will raise mortgage rates on Monday.
More than eight in 10 mortgage customers have fixed-rate deals, meaning their payments remain unchanged until their agreement expires, usually after two or five years.
Rachel Springall, a finance expert at Moneyfacts, said borrowers would be frustrated to see rates return to levels recorded only weeks earlier. She said about 100 mortgage deals had been temporarily withdrawn as lenders reassessed pricing.
Springall advised borrowers due to remortgage this year to consider securing a deal with their current lender early while asking a broker to search for better alternatives.
Mortgage broker David Hollingworth of L&C Mortgages said the recent change showed how quickly market sentiment could shift.
For business owners already facing narrow profit margins and high costs, the latest movement is a reminder that borrowing may remain expensive. Expectations of a smooth decline in interest rates have weakened as geopolitical tensions continue to affect energy markets and central bank decisions.
