HSBC and Coventry Building Society among big names to raise fixed rates, as experts predict more will follow
Major mortgage lenders are increasing rates in response to the escalating conflict in the Middle East – and more are set to follow, experts warn.
Lenders including HSBC, Saffron Building Society and Coventry Building Society have confirmed they will be increasing fixed rates for new and existing borrowers in the coming days.
David Hollingworth, associate director at L&C Mortgages, said: “We are now seeing the first big-name lender moves begin to feed through.
“Once we enter this cycle of lenders adjusting their rates, we know that it almost invariably results in others following suit. The current uncertainty means that this upward pressure doesn’t look likely to ease quickly, although there are signs that the market reaction is at least levelling off for now.”
Aaron Strutt, product director of brokers Trinity Financial, added: “HSBC and Coventry are the first big lenders to announce rate hikes based on the funding cost increases brought on by the chaos in the Middle East.
“It seems almost certain we are going to see a lot more rate changes over the coming days.”
Other lenders have started putting planned rates cuts on hold following a rise in swap rates over the past few days driven by the conflict, according to financial data firm Moneyfacts.
Swap rates follow long-term Bank of England base rate predictions and are used by lenders to set their mortgage rates.
Experts had previously predicted a series of base rate cuts over the course of 2026, with mortgage rates expected to come down over the year.
The Bank of England’s base rate is currently 3.75 per cent and was expected to fall by at least 0.25 percentage points, but that has been called into question amid the Middle East war – with some now predicting it will in fact rise.
The National Institute of Economic and Social Research (NIESR) has warned that the Bank “could be forced to raise interest rates back above 4 per cent” if energy prices remain high as a result of the conflict, driving up inflation.
The Bank typically increases its base rate when inflation rises to encourage people to save rather than spend, with the aim of bringing inflation back down. Higher inflation could therefore push up mortgage interest rates.
Mortgage rates are typically higher than base rate, typically tracking around 0.8 percentage points above base rate last year, according to Moneyfacts.
So, the base rate rising to 4.25 per cent could push mortgage rates back above 5 per cent, for example.
Nick Mendes, of broker John Charcol, said: “The conflict has pushed energy prices higher and that uncertainty has quickly fed through into financial markets, with gilt yields and swap rates moving earlier in the week.
“The bigger shift has been expectations around Bank of England rate cuts. Only a couple of weeks ago markets were confident we’d see a cut in March. That now looks less certain.
“Markets and lenders don’t like uncertainty, and if volatility continues for a while longer it wouldn’t be surprising to see a period where rates edge up.”
The average two-year fixed rate is 4.83 per cent whilst the average five-year is 4.95 per cent, according to Moneyfacts, although there are still cheaper deals available for those with the largest amount of equity or deposit in their account.
How much more you could be paying on your mortgage
The average house price is currently just over £270,000, according to the latest Land Registry figures.
Should someone have a 25 per cent deposit of £67,500, paying an interest rate of 4.25 per cent, with a mortgage term of 25 years, they would currently be repaying £1,097.02 a month.
Should this increase to 4.75 per cent, as an example, the repayment would increase to £1,154.49 – and £1,183.79 if the interest rate rose to 5 per cent.
For those with a higher price home with a higher interest rate or a lower deposit, the costs can be significantly higher.
As an example, someone buying a £450,000 home with a 10 per cent deposit of £45,000 on a rate of 4.25 per cent would be paying £2,194.04 a month.
Should this increase to 5 per cent, the repayments would climb to £2,367.59 a month.
What you should do if you’re remortgaging or buying a home
If you’re coming up to remortgage this year or are looking to buy a home, speculation around interest rates can be worrying, and you might be wondering whether to lock into a five-year deal or stick with a two-year fix.
A five-year deal can offer stability and peace of mind and means that if interest rates rise, you will be better off – but it also means you won’t benefit if interest rates fall over the period.
Experts have said those looking to get a new mortgage soon may be better to secure a rate now.
Hollingworth said: “In the short term it’s likely that these increases will not see mortgage costs rocket, but it does look like the improvements made in recent weeks could unwind quickly.
“With such an unpredictable backdrop those borrowers that are considering a new fixed rate deal at the moment should be looking to secure the rate sooner rather than later.”
However, others have suggested it’s best to avoid trying to time the market and simply lock into the best deal you can at the time that suits your circumstances.
For example, a longer mortgage could suit someone looking for stability, while a shorter mortgage may be better if you’re likely to move in the near future.
Shaun Sturgess, director of Sturgess Mortgage Solutions, said: “How long you should fix into a mortgage deal for will always come down to you.
“For example, your views on interest rates, whether you are happy to be locked into a rate for longer for certainty, whether you plan to upsize or downsize in the not-too-distant future, and countless other factors.”
If you’re not sure what kind of mortgage is best for you, consider speaking to a mortgage adviser as these professionals have access to a wider range of deals and can assess find the right one for you based on your circumstances.