Why Are Mortgage Interest Rates Going Up Suddenly?

What SONIA Swap Rates Are and Why They Matter

If you have never heard of SONIA swap rates before, you are not alone. Most people only come across the term when their fixed mortgage deal is ending, and they are trying to work out why the new rates on offer look different from the ones they signed up to a few years ago. We have covered the mechanics of this in detail in our guide on what SONIA swap rates are and how they influence fixed mortgage deals, but the short version is this: swap rates are what lenders pay in the wholesale money markets to secure funding for a set period, whether that is two years, five years, or longer. When those wholesale costs go up, lenders usually pass some of that increase on through their fixed-rate pricing. When swap rates fall, fixed rates tend to follow, though not always by the same amount or at the same speed.

What Has Happened to Swap Rates Recently

Swap rates fluctuate daily based on shifting economic data and market expectations. Over the past two weeks, both two-year and five-year SONIA swaps have pushed higher. The table below gives a simple snapshot of where things stood during this recent period:

The two-year swap tends to drive pricing on two-year fixed mortgages, while the five-year swap feeds through into five-year fixed deals and much of the buy to let market. You can see how this plays out across different products on our buy to let mortgages pages, where landlords are watching these same swap movements closely.

Driver One: Renewed Tension Around the Strait of Hormuz

The Strait of Hormuz is one of the most important shipping routes in the world for oil and gas, and it has been at the centre of fresh hostilities between the United States and Iran over the past few days. Attacks on commercial vessels and retaliatory military strikes have unsettled the region again, and traffic through the strait has dropped sharply compared with normal levels.

Markets do not like uncertainty around energy supply. Brent crude, the main international oil benchmark, has swung higher through the volatility, at times climbing into the mid-eighty-dollar range. Higher oil prices tend to feed through into inflation because energy costs sit underneath almost everything else in the economy, from transport to manufacturing to heating bills. When investors expect inflation to run hotter for longer, they price that into swap rates, which is a large part of why swaps have moved upward recently.

Driver Two: UK Wage Growth Remains Rigid

The other piece of the puzzle is closer to home. The latest official figures from the Office for National Statistics show that regular pay growth across the UK, excluding bonuses, is running at around 3.4% annually. While this represents a noticeable cooling down from the peak wage growth seen a year or two ago, the deceleration has started to flatten out.

Wages are no longer surging, but this 3.4% rate is still higher than the level the Bank of England is comfortable with if it wants inflation to settle sustainably around its 2% target. Public sector pay growth has also been running noticeably faster than private sector pay in recent data, adding another layer for the Bank’s rate setters to weigh up. Because wage growth is proving sticky rather than cooling rapidly toward target levels, the door remains open for the Bank of England to hold rates higher for longer, rather than delivering the swift cuts some borrowers had been hoping for.

What This Means for Fixed Mortgage Pricing

Lenders reprice their fixed mortgage products in response to swap rate movements, sometimes within a matter of days. A rise of even a small fraction of a percentage point in swap rates can be enough to push some major lenders to withdraw their cheapest deals and replace them with higher ones.

We see this real-world impact clearly when market leaders like Barclays and NatWest react to wholesale volatility. High-street giants do not wait around when funding costs shift; they actively manage their risk margins in real time. It is now common practice for these major lenders to give brokers and consumers minimal notice before pulling their most competitive fixed-rate deals from the market entirely. They quickly replace them with pricier iterations or adjust their loan-to-value (LTV) criteria to limit exposure, completely changing the borrowing landscape in a single afternoon.

This volatile climate is exactly why we are advising clients to review their options rather than wait, as detailed in our guide outlining why we are telling clients to lock in mortgage rates now, especially since pricing can move in entirely different directions across different lenders within the exact same week.

If you are partway through a purchase or waiting to remortgage, this kind of volatility is worth taking seriously. It does not mean panicking, but it does mean checking where you stand rather than assuming the rate you saw advertised last month is still available today.

Should You Fix Your Rate Now?

There is no single right answer here. It depends entirely on when your current deal ends, how much certainty you want over your monthly payments, and how comfortable you are with the possibility that rates could still shift later in the year.

Many lenders allow you to secure a new rate several months in advance and switch to a cheaper deal if one becomes available before your mortgage completes. If your current fixed rate is due to end within the next six months, it is generally worth starting the conversation early through our dedicated remortgage service rather than waiting until the last moment, particularly while swap rates remain unsettled. You can also get a quick sense of the numbers using our online remortgage savings calculator before speaking to an adviser.

FAQs

Why do SONIA swap rates affect my mortgage if I am not borrowing on a variable rate?

Fixed mortgage rates are priced using swap rates rather than the Bank of England base rate directly. Lenders borrow at swap rates to fund the fixed deals they offer you, so movements in swaps feed through into the fixed pricing you see, even though your own monthly payment stays flat for the length of your deal.

Will mortgage rates keep rising from here?

Nobody can say for certain. Swap rates move daily based on new economic data, geopolitical developments and shifting expectations about what the Bank of England will do next. What matters for your own situation is less about predicting the market perfectly and more about understanding your options and timing.

Should I wait for rates to fall before fixing?

Waiting can pay off if rates fall, but it can also mean missing a good deal if rates rise instead. Many lenders let you lock a rate in advance and switch later if something cheaper appears, which removes some of the pressure of trying to time the market. Our team can talk you through how this works for your situation through our contact page.

Does this affect buy-to-let and self-employed borrowers differently?

Swap rate movements affect fixed pricing across residential, buy to let and self-employed mortgages in broadly the same way, since they all draw on the same wholesale funding markets. Where things differ is in how lenders apply their own risk margins on top, which can vary depending on your income type and the property you are borrowing against.

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WIS Mortgages and Protection Services is a trading name of WIS Contractor Mortgages Limited, which is authorised and regulated by the Financial Conduct Authority (FCA number 824411). Your home may be repossessed if you do not keep up repayments on your mortgage. This article is provided for general information only and does not constitute financial advice.