Inflation held steady at 3% in the 12 months to February, providing a brief sense of stability in an otherwise volatile economic environment.
Conflict in the Middle East and the resulting jump in energy prices have raised fears that this period of calm may be short-lived, especially as the latest inflation numbers from the Office for National Statistics pre-date the war.
Oil and gas prices around the world have risen sharply since the conflict started, which could push inflation much higher in the coming months. Energy costs affect many things, from heating bills to transport and food, which means any sustained increase in prices is likely to filter down to most of our everyday household expenses.
This in turn has made the Bank of England’s next move on interest rates uncertain. Until now, the Bank has been clear that rates were on a downward path, with its main objective being to bring inflation down to its 2% target.
However, it maybe that steeper inflation going forward prompts the Bank to change its approach and consider raising rates to help keep inflation under control.
What’s happening to mortgage rates?
Fixed-rate mortgage pricing has been changing rapidly since the Middle East conflict started, with uncertainty resulting in more than 1,700 products being pulled from the market since 9th March, according to Moneyfactscompare.
This is down to fluctuating swap rates, which are the interest rates lenders use to predict how much it will cost them to fund fixed-rate mortgages over a set period. When these rates move up or down quickly, often in response to inflation expectations or market uncertainty, lenders adjust their fixed mortgage pricing accordingly, which is why fixed rates have been so volatile recently.
For example, the average two-year fixed mortgage rate has jumped from 4.84% at the start of the month to 5.56% on 25 March, while the average five-year fixed rate has risen from 4.96% to 5.54% over the same period.
These increases, coupled with the possibility of interest rate rises down the line, mean it might not pay to hang around in the hope that better rates might come along in future.
If you’re worried about locking into a fixed mortgage rate at the wrong time, L&C’s free Rate Check service can provide valuable piece of mind. It allows you to secure a deal now, protecting you against any future potential increases, but also to review rates at any time until you make the final switch to a new deal.
