Mortgage rate cuts had been widely expected following this week's Spring Statement, with Office for Budget Responsibility (OBR) forecasts of falling inflation, sluggish growth and rising unemployment increasing the likelihood of Base Rate cut.
However, accelerating conflict in West Asia has raised questions about global energy prices, inflation, and market volatility.
Markets now predict there’s just a 20% chance that the Bank of England will lower interest rates at its next meeting, down from 80% last week.
Swap rates, which have a big influence on fixed rate mortgage costs, have been volatile since the conflict began. Two-year swap rates have risen from 3.33% last Friday (27th February) to reach 3.65% this morning, while five-year swap rates have increased from 3.50% to 3.80%.
As a result, some mortgage lenders cancelled planned rate cuts earlier in the week while others pressed ahead with planned cuts.
Lenders such as Gen H, HSBC, Nationwide, Santander, West One and Coventry Building Society have announced selected fixed rate increases – with more likely to follow.
The average two-year fixed residential mortgage rate has risen from 4.82% on Wednesday to 4.84%, with the average five-year fix up from 4.94% to 4.96%.
Adam French, head of consumer finance at Moneyfacts, commented: “Conflict across the Middle East means the Bank of England is likely to resist any temptation to cut the Base Rate for now and instead hold steady until the economic effects become clearer. What is immediately obvious is the risk of adding fuel to what may prove to be a fresh inflationary spike far outweighs any benefit a rate cut could bring.
“Lenders are already beginning to change plans and reprice products in response to the likelihood of rates remaining at their current level, or higher, for longer than had been expected. The Moneyfacts average two and five-year mortgage rates have begun to rise reflecting modest increases that are starting to take effect across the mortgage market.
"It may not be the news many prospective borrowers will want to hear, but the long-term damage caused by inflation is far worse than a delay to rate cuts. Inflation compounds quietly but relentlessly. Something that cost £100 in 2020 will cost around £128 today, for example, steadily eroding living standards and household spending power.
“Recent years have taught us that when inflation runs ahead of interest rates for prolonged periods, households pay the price. Savers in particular have already seen significant erosion in the real value of their money as rates lagged behind inflation. Previous Moneyfacts analysis has found the typical cash saver has been left out of pocket to the tune of 11p for every £1 saved, in real spending power terms, since 2020.
“That experience should make policymakers cautious. Base Rate policy works best when it remains firmly focused on the objective of taming inflation. Holding steady until the outlook is clearer will help avoid repeating the mistakes that have left British households still absorbing the cost of higher prices.”
