Mortgage borrowers in the United Kingdom are expected to face higher interest rates in the coming week as lenders respond to a recent surge in global borrowing costs. The increase follows a sharp rise in bond yields triggered by escalating tensions in the Middle East, which also pushed up the price of Brent crude oil and raised concerns over supply disruptions through the Strait of Hormuz.

Justin Moy, managing director at EHF Mortgages, noted that interest rates on new mortgages were "days away from wholesale increases." Swap rates, which reflect the interest rates banks charge each other and serve as a benchmark for mortgage pricing, temporarily climbed to 4.5% last Wednesday, marking their highest level in three years. Meanwhile, yields on 10-year UK government bonds exceeded 5.2%, reaching levels not seen in nearly twenty years.

Mortgage data tracking firm Moneyfacts reported that four lenders pulled mortgage deals on Thursday, despite the addition of over 100 new deals earlier in the week. Rachel Springall of Moneyfacts commented that the rising swap rates signal tougher conditions for borrowers. Data from the firm also showed that average rates on two-year and five-year fixed-rate mortgages have increased by approximately 0.75 and 0.7 percentage points respectively since the outbreak of the conflict in Iran earlier this year.

Simon French, chief economist at Panmure Liberum, cautioned that while mortgage rates are set to rise soon, the scale of the increase is unlikely to match the dramatic squeeze observed in 2022. At that time, mortgage providers withdrew hundreds of deals following the financial market turmoil triggered by the UK government’s mini-budget under former Prime Minister Liz Truss.

French also highlighted the potential political ramifications of rising borrowing costs, stating that the higher rates could intensify pressure on the government ahead of its budget announcement next month. He suggested that this environment might prompt discussions around introducing mortgage support measures, such as guarantees or schemes similar to Help to Buy, aimed at easing the financial burden on homeowners.