British business owners hoping the summer would bring cheaper borrowing have been dealt a blow. Average UK mortgage rates have risen back to the level of a month ago, as renewed tensions in the Middle East feed through to lenders and, ultimately, to homeowners.
Lenders’ funding costs have increased as markets conclude that a prolonged conflict reduces the likelihood of interest rate cuts by central banks. The five biggest High Street banks are among a host of lenders that have raised rates on new fixed deals in recent days.
The trigger is oil. Prices hit $100 a barrel on Thursday for the first time since May, after fresh strikes and Houthi militia attacks on oil tankers in the Red Sea reignited fears over global energy supplies. Rates had been falling while a ceasefire between the US and Iran appeared to hold; that optimism has evaporated.
For SME owners, the pain lands twice. Many finance their firms against personal property, or carry residential and buy-to-let mortgages alongside commercial borrowing. The swap rates that drive fixed mortgage pricing also underpin asset finance, overdrafts and commercial loans, so a repricing rarely stops at the front door. It comes on top of an already-subdued market in which high borrowing costs have deterred buyers and dampened activity.
More than eight in 10 mortgage customers hold fixed-rate deals, whose interest does not change until the deal expires, usually after two or five years. The average rate on a new two-year fix is now 5.59 per cent, according to financial information service Moneyfacts. That is the highest since 19 June, though still below the April peak of 5.9 per cent. The five-year average stands at 5.61 per cent, a level last seen on 7 June. HSBC has said it will raise its rates on Monday.
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