Analysis from Moneyfacts showed that since the US-Iran conflict started, two- and five-year swaps have risen by around one percentage point and reached their highest level in more than a year.
The firm said swap rates were now around 4-4.25%.
Following weeks of lenders increasing mortgage rates, the average two-year fixed rate has gone up from 4.83% at the start of the month to 5.35%, the highest since March last year. For a £250,000 mortgage over 25 years, this increase would add £900 to repayments each year.
The average five-year fixed rate has risen from 4.95% to 5.39% since the start of the month, the highest since July 2024. This would add an extra £775 per year to payments on a £250,000 mortgage over a 25-year term.
Moneyfacts’ analysis found that average mortgage rates tend to settle around 1.5 percentage points above the base rate. If the conflict continues to disrupt the economy and the base rate rises to 4-4.25% as predicted, average mortgage rates on new borrowing could settle at around 5.5% to 5.75%.
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Moneyfacts said this could add £1,000-1,500 per year to the cost of borrowing £250,000 over 25 years.
Adam French, head of consumer finance at Moneyfacts, said: “Swap rates, which underpin mortgage pricing, have risen sharply following the decision to hold the base rate at 3.75%, with markets interpreting 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.
“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. 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.”
