Two major lenders have signalled the start of a potential new round of mortgage rate increases raising concerns that the improving conditions seen in the housing market in recent weeks could quickly stall.
HSBC has confirmed that its fixed mortgage rates will rise from today while Coventry Building Society has told brokers that it will increase fixed-rate pricing from Monday. The moves are widely expected to trigger similar action from other lenders as rising funding costs begin to feed through into mortgage pricing.
The change in direction follows sharp movements in financial markets linked to escalating conflict in the Middle East. Higher oil and gas prices have reignited concerns about inflation, pushing up government borrowing costs and weakening expectations that the Bank of England will cut interest rates in the near term.
As lenders rely heavily on swap markets to fund fixed-rate mortgages, rising market costs are already starting to influence mortgage pricing.
INFLATIONARY PRESSURES
David Hollingworth (main picture, inset), Associate Director at L&C Mortgages, says: “We are now seeing the first big name lender moves begin to feed through.
“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.”
Mortgage rates had been edging down in recent weeks, helping to restore some confidence among buyers and sellers after a prolonged period of affordability pressures.
DOMINOE EFFECT
Hollingworth warns: “Once we enter this cycle of lenders adjusting their rates, we know that it almost invariably results in others following suit. The current uncertainty means that this upward pressure doesn’t look likely to ease quickly, although there are signs that the market reaction is at least levelling off for now.
“In the short term it’s likely that these increases will not see mortgage costs rocket but it does look like the improvements made in recent weeks could unwind quickly.”
