“Trumpflation” is continuing to drive up mortgage rates, with the average two-year fixed residential mortgage rising from 4.83 per cent at the start of March to 5.35 per cent at the end of last week (March 20).
Analysis from Moneyfacts examined how mortgage rates have been affected by President Trump’s war with Iran, which was launched on February 28.
It found the rise in the average two-year fix will add an extra £900 per year to the cost of borrowing £250,000 over 25 years.
A similar trend was observed among five-year fixed residential mortgage rates, which rose from 4.95 per cent at the start of March to 5.39 per cent at the end of last week, the highest level it has been since July 2024.
According to Moneyfacts, this will add an extra £775 per year to the cost of borrowing £250,000 over 25 years.
Explaining this, Moneyfacts head of consumer finance, Adam French, pointed out that swap rates, which underpin mortgage pricing, have risen sharply following the decision to hold the base rate at 3.75 per cent.
He detailed that markets interpreted this commentary from the Bank of England as leaving the door open to rate rises amid “Trumpflation” fears.
“With two- and five-year swaps now sitting at their highest level in more than a year, lenders are once again facing higher funding costs, and this will feed through into mortgage pricing,” he added.
Moneyfacts warned that, if the conflict continues to disrupt the global economy, and the base rate rises to 4 per cent or 4.25 per cent as markets are predicting, it may mean average rates on new mortgages stabilise between 5.5 and 5.75 per cent.
It acknowledged that, given the volatility of events, this is subject to change in either direction.
“While a quicker resolution to the conflict in the Middle East could ease pressure on rates, the reality is that a more volatile world is a more expensive world,” French added.
“Even though the most competitive deals will remain below average, anyone looking to buy or remortgage this year needs to prepare for higher costs than previously expected.”
tom.dunstan@ft.com
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