Mortgage rates increased as Iran war hits borrowers
As conflicts in the Middle East continue to negatively impact economies around the world, many mortgage lenders in the UK have begun to increase interest rates.
Experts have expressed concerns that inflation could rise as a result of the ongoing war, putting pressure on the Bank of England not to cut further interest rates.
Nationwide Building Society and HSBC UK have said they will increase some mortgage rates from Friday, including for first-time homebuyers, house movers and people moving and remortgaging.
Coventry Building Society is also set to increase mortgage rates on Monday.
When setting mortgage rates, lenders are heavily influenced by a financial market measure called “swap rates”, which reflect the Bank of England’s market view of which way interest rates will go.
The average two-year fixed mortgage rate is currently 4.84 percent, while the average five-year fixed rate is 4.96 percent, according to Moneyfacts.
Oil and gas prices have risen sharply in recent days as conflicts in the Middle East intensify and threaten to impact costs in the UK. Price increases will increase headline inflation rates, making it less likely that the Bank of England will cut interest rates.
This central interest rate, known as the bank rate, is the primary influence on the rates lenders set for borrowing. Any increase has a negative impact on mortgage holders, for whom repayment interest may increase accordingly.
Adam French, head of consumer finance at Moneyfacts, said: “Some lenders have already paused or reconsidered planned rate cuts.
“As fixed mortgage pricing is closely linked to swap rates, this sudden market move risks stalling the recent momentum towards lower mortgage rates just as borrower confidence begins to increase ahead of the expected rate cut.
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“This is a stark reminder that mortgage costs are not driven solely by domestic policy decisions.
“Global geopolitical events move markets, markets move swap rates, and swap rates ultimately shape the deals offered to borrowers—all while the world watches deeply disturbing events unfold.”
While the Bank of England kept interest rates at 3.75 percent last month, Governor Andrew Bailey had commented that further cuts were likely later in the year.
The impact of the conflict in the Middle East has made this less predictable, with economic think tank the National Institute for Economic and Social Research predicting earlier this week that higher energy prices could force the Bank to raise interest rates above 4 percent.
The final interest rate decision will be announced on March 19.
A nationwide spokesman said: “We keep our mortgage interest rates under constant review to ensure we reflect changes in the market.
“Following the significant increase in swap interest rates as a result of recent developments in the world, we, like other lenders, are forced to increase interest rates. However, our increases are more limited than the increase in swap interest rates and we continue to support our existing customers with our price commitment.”
Coventry Building Society said: “Mortgage pricing is closely linked to swap rates and as these have moved up in recent days we have had to adjust some of our mortgage rates.
“As our rates increase, we are committed to offering competitive options to people looking for a new mortgage deal.”
