The Bank of England’s Monetary Policy Committee voted unanimously to leave the base rate unchanged at 3.75% in March, due to ongoing economic uncertainty caused by conflict in the Middle East.
Prior to President Trump’s decision to go to war with Iran, financial markets had widely expected a rate reduction this month. However, the outbreak of conflict has caused oil prices to rise sharply, raising concerns that inflation could increase again in the coming months. Higher energy prices can feed through into the cost of goods and services across the economy, potentially pushing inflation further above the Bank of England’s 2% target.
Keeping interest rates higher makes borrowing more expensive for households and businesses. This typically reduces spending and demand in the economy, which in turn helps to slow the pace at which prices rise. For this reason, the Bank of England opted to keep rates unchanged for now rather than risk inflation accelerating again.
In response to the increased uncertainty, several lenders have raised mortgage rates in recent weeks. This is largely due to movements in swap rates, which are the rates lenders pay to other financial institutions to secure fixed funding for a set period. Swap rates play a key role in determining the pricing of fixed-rate mortgages, and they rose sharply following news of the conflict.
As a result, lenders that had previously priced in an expected rate cut in March have now withdrawn certain mortgage products or increased their rates.
What rates being held means for you
Uncertainty over when interest rates may move next means the mortgage market remains volatile. If you are looking to secure a new mortgage deal, acting quickly when you find a suitable option could be important.
Securing a deal early can provide peace of mind. If rates rise before your mortgage completes, you will have already locked in a competitive rate. On the other hand, if rates fall, you should have time to switch to a cheaper product before completion.
Given the changing market conditions, seeking professional mortgage advice can help ensure you choose the most suitable deal for your individual circumstances, and that you’re kept informed about market changes.
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