Mortgage rates have begun to show early signs of easing as the Middle East conflict de-escalates.
Rates on mortgage deals skyrocketed with the onset of the conflict, rising by more than 100 basis points on average since the beginning of March. However, the market has now shown signs of cooling as the prospect of a peace deal looks finally in sight. Hundreds of mortgage deals have come back onto the market, while average two-year fixed rates have fallen three basis points (5.87% down from 5.90% a week earlier) according to financial data provider Moneyfactscompare. Two major lenders, Santander and TSB, have both cut fixed and tracker mortgage rates, suggesting that the market might now be pricing in further reductions.
While still far off pre-war deals, the reduced tension in the geopolitical landscape has fed through quickly to the market. Moneyfacts says that alongside falling swap rates – fixed interest rates which dictate mortgage lender pricing – it has seen a slew of new deals on the market offering higher loan-to-value (LTV) ratios, aiding borrowers looking for larger loans.
While the modest falls are potential good news, rates are still highly susceptible to ongoing uncertainty and will not fall as quickly as they rose – despite reports of ceasefire and the reopening of the Strait of Hormuz.
How swap rates work
Although much is made of the Bank of England’s base rate, the truth is that mortgage lenders don’t rely solely on this to price their products. Instead, lenders use the swap rate market to determine the price of the mortgages they provide. Swap rates help lenders to manage their interest rate risk when lending to borrowers. The swap rates rise and fall depending on wider economic conditions and are determined in a market that takes into account wider financial instruments such as bonds.
The widespread uncertainty caused by the Middle East crisis has not just caused rates to rise, it has also led many lenders to withdraw deals from the market as they are unable to price confidently thanks to the volatile nature of the situation. This presents problems for borrowers, whether they’re looking to get on the ladder or remortgage an existing deal, who then find the market is constantly changing.
For anyone considering taking on a mortgage or remortgaging it is essential to ensure they are taking the best approach to find an affordable and realistic deal for their circumstances. A professional mortgage broker can help find the best deals on the market for your situation and advise on how to go about the process in the timeliest manner possible, despite any ongoing uncertainty. Speak to us for mortgage advice, or to discuss this or any wider financial considerations you may have.
