Should you fix now as mortgage rates suffer biggest jump since start of Iran war as five lenders hike prices

MAJOR lenders are hiking mortgage rates, causing the biggest jump since the start of the Iran War. The average two-year fixed-rate residential mortgage on the market on Tuesday morning was 5.54%. Major lenders are hiking their mortgages rates Credit: Getty This was up by 0.04 percentage points from 5.50% on Monday, according to Moneyfactscompare.co.uk. The typical five-year fixed residential mortgage rate on the market increased to 5.57% on Tuesday, an increase of 0.05 percentage points, from 5.52% on Monday. Sign up for the Money newsletter Thank you! Moneyfacts said the two-year fixed-rate increase is the biggest daily rise since April 2. The five-year fixed-rate rise is the biggest daily increase since March 31, it added. Mortgage rates had been edging down in recent weeks after jumping earlier this year amid the conflict in the Middle East. But a wave of lenders have been increasing their rates in recent days. This includes HSBC, Barclays, Nationwide Building Society, Lloyds Banking Group and NatWest Santander has followed suit, increasing its rates for home buyers today by up to 0.3 basis points, as well as increasing rates for those remortgaging. Most read in Money Rachel Springall, a finance expert at Moneyfacts, said borrowers will “be deeply disappointed to see mortgage rates on the rise again, but this just shows how sensitive our financial markets are to geopolitical tensions. “As feared, rising swap rates – which lenders use to price mortgages – are a signal for lenders to move quickly to re-price their ranges, as fixed mortgage rates tend to follow these moves.” Will rates come down? It is unlikely that there will be rate cuts until their is more market certainty Credit: Alamy Rachel said that until there is more certainty in the market, mortgage rate moves are unlikely to calm in the weeks ahead. She added: “This will be frustrating for buyers to see that the positive trajectory of rate cuts seen over recent weeks has been thrown off course.” Adam French, head of consumer finance at Moneyfacts, said that higher funding costs leave lenders “with little choice but to reprice products, even if the Bank of England hasn’t yet changed the base rate”. He added: “A more volatile world is a more expensive world, and recent months and years are clear evidence that borrowers cannot simply assume mortgage rates will continue moving in one direction. “Inflation shocks and shifts in market sentiment can alter expectations overnight. “While competition between lenders is still strong, another bout of volatility has quickly brought the latest rate cutting cycle to a halt. “In the meantime, it is essential prospective borrowers stay on top of their options and seek independent advice.” New figures released today showed that the UK’s inflation rate has dropped slightly to 2.6%. Inflation is a measure of how fast the costs of goods and services are rising. However, experts have warned we could see rising inflation again later in the year. That’s because tensions have flared again in the Middle East, causing oil prices to rise once again this month. Thomas Pugh, chief economist at RSM UK, warned that inflation is still likely to peak at around 3.4% in November. The Bank of England‘s target for inflation is 2%, so this would push the inflation rate well above target, which is bad news for mortgages. That’s because mortgage rates are influenced by the base rate, which is currently sitting at 3.75%. The Bank of England‘s Monetary Policy Committee (MPC) meets every six weeks to decide the base rate. It uses the base rate as a tool to help keep inflation close to its target. When inflation is high, it will raise the base rate to deter consumers from spending and reduce demand – which eases inflation. So, should you fix? Anyone approaching the end of their mortgage is likely to be watching the latest rises Credit: Getty David Hollingworth, associate director at L&C Mortgages, said said anyone approaching the end of their mortgage deal is likely to be watching the latest rate rises with concern. He said: “The resumption of hostilities in the Middle East has not only brought recent fixed-rate cuts to an end, but is now seeing those reductions unwound as lenders are forced to raise rates. “Financial markets fear interest rates may need to rise to counter upward pressure on inflation, which has an immediate impact on the rates used to price fixed mortgages. “More lenders have increased their rates over the past week or so, with some implementing their second rise in as many weeks.” Borrowers can start shopping around for a new mortgage as much as six months before their existing deal ends. However, David said it often makes sense to begin looking three to four months in advance. Taking a fixed-rate mortgage now would protect borrowers against further increases and provide certainty over their monthly repayments. However, borrowers must also decide how long to fix for, with deals lasting from two years to 10 years or more. David added: “No one knows what rates will do in the future, and we have seen something of a rollercoaster in recent years. “Those who believe the latest rise may be a temporary blip could favour a shorter-term deal, hoping they will be able to secure a lower rate when it ends. “But borrowers who are more concerned about affordability and want certainty over their repayments may take greater comfort from fixing for longer.” People should also consider whether they are likely to move home or need to change their mortgage during the fixed term. Most fixed deals come with early repayment charges, which can leave borrowers facing a sizeable penalty if they need to leave before the term ends. David said borrowers may therefore want to match the length of any fixed deal and tie-in period with their future plans, leaving them free to shop around when their circumstances change. Comment now