Middle East conflict and rate uncertainty feed through to pricing
Fixed mortgage rates have risen at several major lenders as higher wholesale funding costs and uncertainty over a Bank of England rate cut feed through to the home loan market.
Nationwide, Virgin Money and NatWest have all moved to reprice portions of their fixed-rate ranges after a sharp increase in swap rates linked to the conflict in the Middle East and higher energy prices.
Nationwide has increased selected fixed rates by up to 0.25 percentage points. The changes affect products for first-time buyers, home movers, existing borrowers moving home, remortgage customers, product switchers and additional borrowing.
Virgin Money has also raised rates on a number of fixed products by as much as 0.25 percentage points, including purchase, remortgage and product transfer deals. The new pricing from both Nationwide and Virgin Money took effect today.
NatWest announced increases of up to 0.16 percentage points across purchase, remortgage, first-time buyer, shared equity, green and buy-to-let ranges, effective tomorrow, March 7.
The repricing comes as swap rates – which are used by lenders to hedge fixed-rate mortgage funding – have climbed to their highest levels in around a month. Strong gains in gas and oil prices have fuelled concerns about renewed inflationary pressure.
According to Moneyfacts, two-year swap rates have risen from 3.33% to 3.65% over the past seven day, while five-year swaps have moved from 3.50% to 3.80% over the same period.
The prospect of a Bank Rate reduction at the Monetary Policy Committee’s March 19 meeting has therefore become less clear, with markets now questioning how quickly policy can be eased if inflation proves more persistent.
“Once we enter this cycle of lenders adjusting their rates, we know that it almost invariably results in others following suit,” said David Hollingworth, associate director at L&C Mortgages. “The current uncertainty means that this upward pressure doesn’t look likely to ease quickly, although there are signs that the market reaction is at least levelling off for now.”
Average mortgage rates had been edging down in recent weeks as headline inflation slowed to 3% in the year to January, from 3.4% a month earlier, moving closer to the Bank of England’s 2% target.
“Mortgage rates had been gradually edging down as markets priced in the expectation of several Bank of England rate cuts later this year,” said Nicholas Mendes, mortgage technical manager at John Charcol. “However, the recent geopolitical uncertainty has quickly fed into financial markets, with swap rates moving earlier in the week as investors reassessed inflation risks and the likely path of Bank of England interest rates.
“Markets are now pricing in the possibility of only one rate cut for the whole of this year at best, and the reduction that had looked almost certain at the next Bank of England meeting now appears far less assured.”
Adam French, head of consumer finance at Moneyfacts, said the new wave of rate hikes “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,” he explained.
“For borrowers, the key message is that periods of market volatility can lead to lenders adjusting rates quickly,” Mendes said. “Securing a deal early can provide a degree of protection, particularly as most lenders allow borrowers to move onto a cheaper rate before completion if pricing improves.”
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