Reversing June’s modest gains, average mortgage costs surged in August due to increased swap rates and Middle East conflict, with fixed rates marking the first rise since April despite increased product options.
Lender repricing in July wiped out the modest improvement seen in June, according to the latest monthly figures from Moneyfacts, as average mortgage costs climbed again in response to higher swap rates and renewed turmoil in the Middle East. The Moneyfacts average mortgage rate, which covers fixed and variable deals on sale, rose by 12 basis points to 5.59% at the start of August, after falling by the same amount in June to 5.47%.
The reversal was most visible in the fixed-rate market. Moneyfacts said the average two-year fix rose 11 basis points to 5.63% in July, while the average five-year fix increased 14 basis points to 5.66%, the first monthly rise for fixed rates since April. Rachel Springall, a finance expert at Moneyfacts, said lenders had been forced to reverse cuts because of swap-rate volatility, which she linked to conflict in the Middle East and fears that higher oil and energy prices could feed inflation and, in turn, pressure the Bank of England. That backdrop comes after a volatile 2023, when Moneyfacts data showed two-year fixed rates surged to levels not seen since the financial crisis, with some measures hitting 6.66% and then higher later in the month as markets priced in further monetary tightening, according to reporting by The Guardian and Mortgage Finance Gazette.
Even with those pressures, the market did show signs of resilience. Product choice rose for a fourth straight month, up by 180 to 7,357 deals in July, and Moneyfacts said 90% of products had returned after the sharp withdrawals seen between March and April. The average shelf-life of a mortgage offer fell to 11 days from 14 in June, reflecting rapid repricing by lenders, but Springall said the broader rise in availability also included more options at 95% and 90% loan-to-value, giving some borrowers a little more room to manoeuvre.
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