FIVE-year swaps are almost as high as a year ago as NatWest and Barclays hike mortgage rates amid the Iran war, with experts warning “the cost of borrowing is rising fast”.
The five-year swap rate is now 3.918%, up from 3.787% a day ago and up from 3.647% a month ago. It’s now almost the same level as one year ago when it was 3.931%.
This comes as the war in the Middle East reached new levels of horror with oil prices rising, reaching $100 a barrel, as three more cargo ships were attacked in the Gulf.
This has led to fears of inflation going up, leading to swap rates hiking once again, leading to higher mortgage and interest rates.
This could lead the Bank of England to pause plans to cut its base rate from its current 3.75% level next week – and may even lead it to increase its base rate.
And now NatWest, with up to 0.25% rises across the board, and Barclays, with 0.3% rises across the board, are the latest lenders to hike mortgage rates.
Rising swap rates lead to higher mortgage rates
Martin Rayner, Director at Compton Financial Services, a mortgage broker, explained why rising swap rates are negative for borrowers.
He said: “Rising swap rates lead to higher mortgage rates and also signal that markets expect interest rates to stay higher for longer, which can reduce affordability for borrowers and increase borrowing costs for businesses, potentially slowing housing activity and wider economic growth.
“Markets are becoming less confident that interest rates will fall soon, with geopolitical tensions and inflation risks pushing expectations towards rates staying higher for longer.”
Bob Singh, Founder at Uxbridge-based Chess Mortgages, said the fear is that inflation will rise.
He added: “In this world we live in, nothing is straightforward and nothing is predictable. We have seen the world turned upside down by the recent events in the Middle East. These geopolitical tensions have undone the good done over the last year when we saw inflation and base rates fall.
“Confidence was increasing and banks were happy to lend more to homebuyers. Right now the landscape looks rather shaky. The drones have not only hit Tehran but also our economy. Swap rates have edged up to 2025 levels undoing the gradual decline in rates.
“With the spectre of inflation rising again there is now a real prospect that rates will be higher for longer. First-time buyers will once again be in a quandary to buy now or wait. Brokers will have to be on their toes in the coming weeks.”
It will further slow the housing market
Steven Greenall, Mortgage and Protection Advisor at Rayleigh-based Protect & Lend, said swap rate rises will slow the housing market.
He added: “The recent pressure on swap rates brought on by a surge in energy prices due to the tension in the Middle East has led to lenders swiftly increasing mortgage rates. It’s not good for an already turgid economy and will further slow the housing market.
“Will this lead to the Bank of England having to do a U-turn with the base rates and being forced to increase them instead of continuing on their easing path? We haven’t seen enough U-turns on policy recently have we?”
Ken James, Director at London-based Contractor Mortgage Services, said it’s another blow for homeowners.
He added: “Swap rates, the not-so-secret driver behind fixed mortgage pricing, have been jumping around like a rave party amid tensions in the Middle East. When swap rates rise, lenders’ funding costs increase and that usually means higher fixed mortgage rates.
“For first-time buyers, that can mean borrowing less or delaying a purchase. For homeowners coming off fixed deals, it’s another blow. Many were hoping refinancing in 2026 would be cheaper than the past two years. This spike is pushing rates higher again.
“And with the oil prices skyrocketing it is inevitable that we will have rising energy prices and inflation which may force the Bank of England to keep the base rate static for longer. A reminder that global events can quickly hit home and is often felt through your mortgage payments.”
The cost of borrowing is rising fast
Rohit Kohli, Director at Romsey-based The Mortgage Stop, said the cost of borrowing is rising fast.
He added: “We have effectively seen almost a year’s worth of rate reduction progress wiped out in the space of a week. Markets are very risk-averse. They want stability, clear direction and a better outlook. Right now they have none of that, so the cost of borrowing is rising fast and lenders are pricing in more uncertainty.
“That does not just affect mortgages. It hits affordability, weakens confidence and risks slowing the housing market sharply. If this war drags on, this stops being a mortgage story and becomes a much wider economic one.
“This is a moment that needs firm leadership and clear action from government, but after 18 months in power they have given little sign that they are willing or able to take charge, and that is why I fear the worst.”
Simon Bridgland, Broker at Canterbury-based Charwin Private Clients, said Donald Trump is to blame for economic turmoil.
He added: “The good progress made over the last year has been undone by the action of one man. The domino effect is in full force.
“If sustained, the higher rates will have an impact similar to what was seen in the UK one or two years ago, with buyers reluctant to proceed with purchases, holding off until rates simmer down, stalling the market.”
Dariusz Karpowicz, Director at Doncaster-based Albion Financial Advice, said the Middle East war has led to a “brutal reality” hitting the UK economy.
He added: “A year’s worth of rate progress wiped out in a week. That is the brutal reality of what geopolitical turmoil does to borrowing costs. Five-year swaps at 3.918% are practically back to where they sat 12 months ago, and every basis point increase feeds straight into mortgage pricing.
“Oil prices, fuel costs, and the real threat of inflation are taking their toll. Markets hate uncertainty, and right now they have nothing but. If there is no path to peace soon, lenders will keep pricing in risk, confidence will weaken, and the housing market could stall sharply.
“This stops being a mortgage story very quickly; it becomes an economic one. The question is whether anyone in government has the nerve to act before it spirals further.”
Photo by Nancy Hughes on Unsplash.
