UK mortgage rates have climbed to their highest levels in around five months as rising oil prices and resilient economic growth fuel expectations that the Bank of England may be forced to increase interest rates again.
The average two-year fixed residential mortgage rate rose to 5.67% on Friday, its highest level since June, according to data from Moneyfacts.
The typical five-year fixed rate reached 5.72%, its highest level since April.
The latest increase comes as financial markets sharply reassess the outlook for UK interest rates following renewed inflationary pressure from energy markets and stronger-than-expected domestic economic growth.
Oil prices have surged amid escalating tensions in the Middle East, increasing concerns that higher energy costs could feed through into broader inflation and make it harder for the Bank of England to keep price pressures under control.
Markets are now pricing an increased probability of further monetary tightening, with expectations strengthened after the European Central Bank raised interest rates on Thursday.
Adam French, head of consumer finance at Moneyfacts, said borrowers were facing another wave of mortgage repricing, with around 20 lenders increasing rates this week.
Major high-street lenders including HSBC, Halifax, Lloyds, Nationwide and Santander have all raised mortgage pricing.
French said the increase reflects a sharp rise in wholesale funding costs, which determine much of the pricing of fixed-rate mortgages.
Those funding costs have moved higher as investors increase their expectations that other major central banks, including the Bank of England, could follow the ECB with further rate increases.
The renewed rise in mortgage costs will add pressure for homeowners approaching the end of existing fixed-rate deals, particularly borrowers who had been hoping that mortgage pricing would continue to fall.
With markets now contemplating multiple Bank of England rate increases over the coming year, further movements in wholesale swap rates are likely to remain a key driver of mortgage pricing in the weeks ahead.
