WAR, What is it good for..?

There are many factors that affect a lender's decision to increase or decrease their rates of interest, and they don’t have to happen in the UK to influence what you pay on your mortgage. Increased periods of heightened geopolitical tension, such as what we are seeing in the Middle East, can create ripple effects that reach the UK economy very quickly. This uncertainty in global financial markets leads directly to increased interest rates, an increase in lender activity and a restriction on mortgage product availability.

Why Global Events Impact My Mortgage Rates

UK mortgage rates are not set in isolation. Lenders base their pricing off financial market indications such as swap rates which, essentially, are the interest rates that lenders charge each other to borrow money.

When geopolitical tensions rise, financial markets react with uncertainty. This can lead to volatile swap rates as financial institutions try to manage their expectation of future economic conditions, which has a direct impact on fixed rate mortgage products. During these periods we often see continuous withdrawal or repricing of products as lenders all respond to changing conditions.

War, Oil Prices and Inflation

One of the key factors that affects everything is energy pricing. The Middle East plays a huge role in global oil and gas supply, so any disruption will naturally push prices higher.

Higher energy cost will directly feed into an increase in inflation figures as it acts as an universal cost for nearly all goods and services. Not only do you see an almost immediate increase in the cost to put petrol in your car or turn the heating on at home, but you will also gradually see an increase in the cost of food at the supermarket or buying electrical goods from shops. This is because of the higher cost to transport goods and manufacture products.

When inflation rises, financial markets anticipate that interest rates will also rise, or may need to stay higher for longer to bring inflation under control. This is positive if you have money in savings but has a negative impact for borrowers. The Bank of England’s target for inflation is set at 2%.

When Have We Seen This Before?

While the causes differ, similar patterns of volatility have been seen in other recent events.

After the COVID-19 pandemic, interest rates initially fell to support the economy. However, as inflation rose in the aftermath, mortgage rates increased significantly, and lenders adjusted pricing rapidly in response to changing economic conditions.

Another example was the market reaction following the 2022 UK mini-budget. This triggered sharp movements in financial markets, causing swap rates to spike and leading to a sudden increase in mortgage rates, along with widespread product withdrawals. These periods highlight how sensitive mortgage markets can be to sudden shifts in economic confidence and expectations.

 What is happening to the rates now

As of the 31^st March we have seen an increase in most, if not all, fixed rates available on the market, whether over 2 years, 3 years of 5 years. Since the conflict escalated with the United States' involvement these fixed rates have increased by around 1% over a three-week period. Whilst this is a concerning trend, the expectation is that, should things ‘calm down’ in coming days we could see rates reduce back to where they were before. Previous estimates were that the Bank of England could reduce the base rate a couple of times before the end of the year, new expectations are that will no longer happen but, obviously, it is a very fluid situation.

For most homeowners, this won’t be too much of a concern as they may be in the middle of a long-term fixed deal so their rate of interest is unaffected. For others who may be coming to the end of a fixed deal, timing could become more important. Securing a rate early may provide certainty, while waiting could expose you to further changes in the market. Or those on tracker deals may try to ride out the storm or change to a fixed deal. Whichever group you fall into, pop us a call to see how we can help protect you during this changeable period.