Mortgage rates are unlikely to fall again until at least September amid rising oil prices and higher inflation forecasts, experts have warned.
Home loan rates have been falling for several months as the conflict in the Middle East – which sent oil prices hurtling upwards in February and March – looked to be easing.
But the trend has reversed in recent weeks as a fragile ceasefire between the US and Iran ended and disruption intensified in the Strait of Hormuz – through which about one-fifth of the world’s oil and gas typically passes.
Average two-year fixed mortgage rates have risen from 4.47 per cent last Wednesday (15 July) to 5.59 per cent on Friday 24 July, according to Moneyfacts, whilst five-year fixes are now 5.61 per cent.
Lenders are continuing to increase prices, with HSBC the latest to announce it will do so from Monday (27 July).
Halifax and Barclays also upped rates earlier this week alongside Nationwide, Coventry Building Society, Virgin Money and others.
Rates are priced largely on swap rates, which go up or down depending on long-term predictions for where the Bank of England base rate will go.
If markets predict interest rates will rise more, then swap rates and mortgage rates can increase.
But there is a lag between swaps increasing and rates going upwards, so unless swaps stop rising very soon, price rises can be expected for several more weeks.
Patrick Weightman, a mortgage adviser based in Leicestershire, said: “As long as the uncertainty in the Middle East lasts we are going to see elevated fixed mortgage rates continuing.
“I can’t see it resolving in the next four or five weeks, and even if it did, it will take time to filter back through into lenders offerings, so I would expect this trend to run into September at least before we see any meaningful easing.”
Lewis Shaw, a mortgage broker at Shaw Financial Service, said: “Mortgage rates aren’t coming down any time soon. September is the earliest, and even that’s optimistic.”
“Oil is up again this week, and unless we get a sustained ceasefire, rates stay elevated for the foreseeable future. Even if diplomacy wins and peace holds, don’t expect miracles.”
Shaw said the one “wild card” could be a ceasefire in the Middle East, which could give some lenders an excuse to cut if they were suffering from low demand in August.
Nick Mendes, of brokers John Charcol, said that what happened to rates hinged heavily on what happens in Iran, but that he would expect rises for several months.
He said lenders “tend to keep a consistent gap above swaps to cover their own costs”, and that given swaps had risen in recent weeks, more price rises were likely to come for lenders to maintain that gap.
“Upward pressure on fixed rates is likely to run for several more months yet rather than topping out in September,” he explained.
Though average rates are creeping upwards, they are still cheaper than they were at their peak in March and April.
If you are on a fixed rate that is expiring this year, you can approach a broker or lender for a new rate now.
Most lenders will allow you to switch to a cheaper deal if it becomes available before your fix ends, but if rates rise, you’re guaranteed to be able to keep the deal you agreed.
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