UK Lenders Raise Mortgage Rates Amid Middle East Conflict
UK lenders have started increasing mortgage interest rates as the ongoing conflict in the Middle East raises concerns about rising inflation and limits the potential for further Bank of England rate cuts.
Nationwide has raised rates on some of its mortgage products by up to 0.25%, while HSBC UK and Coventry Building Society have also announced rate increases.
Market Expectations and Lender Responses
These rate hikes follow shifts in the financial market's expectations regarding the Bank of England's future interest rate decisions.
David Hollingworth, associate director at L&C Mortgages, does not anticipate mortgage costs to surge dramatically but advises borrowers considering new fixed-rate deals to secure them
"sooner rather than later."
Nationwide stated that its rate adjustments for certain two, three, five, and ten-year fixed-rate products will apply to all new mortgage applications starting Friday.
These products include mortgages for first-time buyers, new and existing customers moving home, those remortgaging, and individuals switching deals.
Interest rates for some of these products will rise to as high as 4.49%, while the lowest rates now start at 3.72%.
Influence of Swap Rates on Mortgage Pricing
Mortgage rates are heavily influenced by a financial market measure called "swap rates," which reflect market expectations for the Bank of England's interest rate movements.
A Nationwide spokesperson explained that the lender continuously reviews its mortgage rates.
"Like other lenders, we are having to increase rates following a significant rise in swap rates as a result of recent global events," the spokesperson said.
"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 plans to increase its rates from Monday.
"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," the building society said in a statement.
"While our rates will be increasing, we remain committed to offering competitive options to people looking for a new mortgage deal."
Impact of Energy Prices and Inflation on Rate Decisions
Experts warn that sustained high oil and gas prices due to the Middle East conflict could broadly increase the cost of goods in the UK, potentially slowing the Bank of England's rate reductions.
Hollingworth commented on the situation:
"The conflict in the Middle East has led to market expectation of higher inflationary pressure causing rate cuts to be slowed or put on hold."
"That pushes up the cost for lenders when pricing their fixed rate mortgages, which can force rates higher."
Amanda Bryden, head of mortgages at Halifax, noted that geopolitical uncertainty is influencing inflation outlooks and the Bank of England's anticipated responses.
"Against that backdrop, markets are now anticipating a more gradual path for interest‑rate reductions," she said.
"If realised, the speed at which borrowing costs ease may be tempered."
Bank of England's Current Position and Future Outlook
Last month, the Bank of England maintained interest rates at 3.75%. At that time, Governor Andrew Bailey told the BBC that some further rate reductions were likely later in the year.
However, the Middle East conflict and concerns over rising inflation have cast doubt on this outlook.
The National Institute of Economic and Social Research, an economic think tank, stated earlier this week that persistent higher energy prices could compel the Bank of England to raise interest rates above 4%.
The Bank of England is scheduled to announce its latest interest rate decision on 19 March.
Additional Factors Affecting Mortgage Rates
Karen Noye, mortgage expert at Quilter, indicated that part of the lenders' rate changes also relate to capacity issues, as lower rates prior to the conflict led to a surge in applications.
"For borrowers, the landscape is more volatile than it appeared even a few days ago. Mortgage rates are likely to remain choppy until geopolitical risk settles and there is clearer evidence that inflation is not going to rise significantly again," she said.
Noye suggested practical measures borrowers can take to protect their finances and save money.
"Most lenders allow borrowers to secure a rate up to six months in advance, so locking something in early can provide valuable protection, with the option to reassess as the end of a fixed term approaches," she said.
"For those just outside the six-month window, some products offer completion deadlines that can provide even longer cover."
