Conflict in the Middle East and the resulting prospect of rising inflation has prompted a growing number of lenders to increase their mortgage rates.
Markets previously expected the base rate to be cut when the Bank of England’s Monetary Policy Committee meets later this month, but the volatile situation in the Middle East means that hopes of a cut have rapidly diminished. The conflict has pushed up oil prices, which could increase inflationary pressure and reduce the likelihood of interest rate cuts.
Swap rates, which are a key factor in fixed mortgage pricing, as they are the interest rates banks charge each other for fixed-term borrowing, have increased sharply in recent days. Rising swap rates reflect the concerns about inflation and the potential need for interest rates to be higher for longer amidst the ongoing uncertainty. An increase in swap rates is therefore a good indicator of where lenders’ fixed mortgage rates may be headed.
Impact on your mortgage
Once a few lenders increase rates, others often follow, meaning fixed mortgage rates could continue edging higher while tensions persist. This doesn’t mean costs will necessarily skyrocket but if you’re approaching the end of your existing mortgage deal or are looking for a new fixed rate mortgage, you may want to secure your next deal sooner rather than later.
Most lenders allow you to lock into your next deal between three and six months in advance. When times are volatile, this can provide valuable peace of mind that you’ve already secured a competitive rate. If the situation subsequently eases and rate cuts appear more likely again, you’ll still have the option to move to an alternative deal in future if a better option becomes available before completion.
