Typical new mortgage costs soar £788 a year in two weeks

New data has revealed that the cost of taking out a typical mortgage today has increased by £788 annually compared to the period before the Iran conflict began. This calculation is based on a 25-year mortgage of £250,000 with an average two-year fixed interest rate currently at 5.28%. According to financial information service Moneyfacts, lenders have raised their rates and removed certain mortgage deals following the onset of US-Israel strikes on Iran in late February.

Significant mortgage providers have withdrawn the most competitive deals with interest rates under 4%, but brokers advise borrowers to stay proactive and plan ahead before their existing mortgage deals come to an end. Fixed-rate mortgage borrowers benefit from stable interest rates during the term of their deal, usually lasting two to five years, after which a new agreement must be selected. In contrast, variable rate mortgages, such as tracker deals, fluctuate in line with adjustments made by the Bank of England, whose rate-setting committee is due to convene later this week.

Moneyfacts reports that the average two-year fixed mortgage rate has climbed from 4.83% at the beginning of March to the current 5.28%, marking its highest point since last April. Similarly, the average five-year fixed rate has risen from 4.95% to 5.32% over the same timeframe, reaching its peak since February of last year. For a typical mortgage holder, this equates to an increase of £651 on a five-year fixed deal within just two weeks. Adam French, head of consumer finance at Moneyfacts, warns that “borrowers may need to brace for further volatility in the weeks ahead as the global economy braces for a ‘Trumpflation’ wave flowing from the US and Israel-led action in Iran.”

The data also highlights a reduction of 689 mortgage products available compared to 9 March, comprising nearly 10% fewer options on the market. While this shrinkage is notable, it remains less severe than the upheaval following the mini-budget unveiled by former Chancellor Kwasi Kwarteng under Liz Truss, when 25% of mortgage deals vanished. Among the deals now removed are the most attractive two-year fixed-rate mortgages below 4%, previously offered by major lenders including Barclays, HSBC, NatWest, Nationwide, and Santander. Mary-Lou Press, president of the National Association of Estate Agents, emphasizes the consequences of this shift, especially for first-time buyers, stating, “This shift highlights how sensitive mortgage rates are to wider economic uncertainty, making it harder for people to plan and potentially slowing activity across the housing market.” She further notes that “Even small increases in rates can significantly impact borrowing capacity and monthly costs, reinforcing the need for stability and confidence.”

Before the conflict intensified, the financial markets had anticipated UK interest rates to decline this year. However, these forecasts were upended as rising oil prices fueled expectations of increased inflation. The yield on two-year government bonds, a key indicator of borrowing costs for this term, has experienced notable volatility since the conflict’s onset. Mortgage adviser Jo Jingree advises borrowers to consult with brokers during this unpredictable period, saying, “I’m speaking to many anxious clients at the moment who often come away from our conversations feeling less overwhelmed and much more reassured.” She adds, “Expert support is key. Mortgage advisers are in touch with lenders constantly and are surveying the changing rates on a daily basis.”

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