Borrowers searching for new home loans may soon receive some welcome relief, as industry analysts suggest the recent sharp spike in mortgage rates could be approaching its peak. This development comes amid a fragile ceasefire between the United States and Iran, which has helped to stabilise surging oil prices—a key driver of global inflation.
Recent Mortgage Rate Increases
Since the onset of the Iran conflict, mortgage repayments for new loans have escalated significantly, causing concern for hundreds of thousands of homeowners. Data from Moneyfacts reveals that the average two-year fixed mortgage rate has climbed from 4.83% at the beginning of March to 5.90% currently, marking its highest level since July 2024. Similarly, the average five-year fixed rate has increased from 4.95% to 5.78% since the war started, reaching a peak not seen since November 2023.
Impact on Borrowers and the Housing Market
This jump has particularly affected individuals taking out new mortgages or those transitioning from cheaper deals who now face higher costs when remortgaging. The housing market is at risk of being adversely impacted by these elevated mortgage expenses, which could constrain affordability and limit access to homeownership for many potential buyers.
Ceasefire and Inflation Pressures
The recent announcement of a ceasefire, although unstable, has led to predictions that oil price increases might be contained. This, in turn, could alleviate some of the inflationary pressures that have prompted central banks, including the Bank of England, to consider interest rate hikes. Caitlyn Eastell, a personal finance analyst at Moneyfacts, commented, "Rates may now be approaching their peak, with lenders slowing down the pace of recent increases. The longer the ceasefire holds the better, so far overall sentiment has improved, reflected in easing swap rates and fewer expectations for base rate hikes."
Bank of England's Upcoming Decision
All eyes are now on the Bank of England's Monetary Policy Committee, which is scheduled to meet on April 30 to vote on interest rates. Last month, the committee maintained the base rate at 3.75%. Enrique Díaz-Alvarez, chief economist at Ebury, noted, "Not only is the energy shock a supply-side issue out of the MPC's control, but with the UK economy and labour market already in a fragile state, the committee will be wary that aggressive hikes could tip Britain into a recession."
Market Developments and Predictions
In a positive sign for borrowers, the number of available mortgage products has increased by nearly 200 in just 24 hours, with 6,510 residential mortgage products now on offer compared to 6,302 the previous working day. Research firm Pantheon Macroeconomics anticipates that the MPC will hold rates steady this month but predicts a potential hike to 4% in June. Further insights may emerge next week when Bank of England Governor Andrew Bailey attends meetings of the International Monetary Fund and G20 in Washington.
Despite these encouraging trends, lenders remain cautious, closely monitoring the upcoming base rate decision. Eastell added, "However, lenders remain cautious and their attention will be turned to the upcoming base rate decision. While it's encouraging to see product choice gradually returning, affordability constraints continue to limit access to homeownership for many borrowers."
