Several UK mortgage lenders have begun increasing interest rates as conflict in the Middle East continues to adversely impact economies worldwide.
Experts have raised concerns that inflation could rise as a result of the ongoing war, putting pressure on the Bank of England to hold off on further interest rate cuts.
Nationwide Building Society and HSBC UK have indicated that they will be pushing up some of their mortgage rates from Friday, including for some first-time buyers, home movers and people switching and remortgaging.
Coventry Building Society is also set to increase its mortgage rates on Monday.
When setting mortgage rates, lenders are heavily influenced by a financial market measure called “swap rates” which reflect the market’s view of which direction the Bank of England’s interest rates will go.
The average two-year fixed mortgage rate is now 4.84 per cent according to Moneyfacts, while the average five-year fixed rate is 4.96 per cent.
Oil and gas prices have increased sharply in recent days as conflict in the Middle East intensifies, threatening to impact costs in the UK. Price rises would increase headline inflation rates, in turn making the Bank of England less likely to cut its rates.
This central interest rate – known as the bank rate – is the key influence on rates set by lenders for borrowing. Any rise has an adverse effect on mortgage holders, whose repayment interest can increase in response.
Adam French, head of consumer finance at Moneyfacts, said: “Some lenders have already paused or reconsidered planned rate reductions.
“Because fixed mortgage pricing is closely linked to swap rates, this sudden market movement risks halting the recent momentum towards lower mortgage rates just as borrower confidence had begun to build ahead of an anticipated rate cut.
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“It serves as 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 available to borrowers – all while the world watches deeply troubling events unfold.”
The Bank of England held interest rates at 3.75 per cent last month, with governor Andrew Bailey commenting at the time that further reductions 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 of Economic and Social Research forecasting earlier this week that high energy prices could force the Bank to increase interest rates to above four per cent.
The latest interest rate decision will be announced on 19 March.
A Nationwide spokesperson said: “We keep our mortgage rates under continual review to ensure we reflect market changes.
“Like other lenders, we are having to increase rates following a significant rise in swap rates as a result of recent global events. However, our increases are more limited than the swap rates rise and we continue to support existing customers with our pricing pledge.”
Coventry Building Society said: “Mortgage pricing is closely linked to swap rates, and as these have moved in recent days we’ve had to adjust some of our mortgage rates too.
“While our rates will be increasing, we remain committed to offering competitive options to people looking for a new mortgage deal.”
