Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Strategy. Read the original article for full details.
Bank Rate Rise ‘Increasingly Likely’ After Middle East Tensions, Says John Charcol
John Charcol mortgage technical manager Nicholas Mendes has said it is “increasingly likely” that the Bank of England could raise interest rates at its next meeting on 30 July or the following one on 17 September. This follows renewed fighting in the Middle East, which has led to a sharp rise in oil prices.
Mendes noted that oil prices, which had previously fallen from over $100 a barrel to around $70, have now jumped to about $78 a barrel after the latest escalation. He explained that oil prices impact the cost of fuel, food, and manufacturing, so a sustained increase could push inflation higher.
According to Mendes, markets have responded to these developments with rising government borrowing costs and falling share prices. He highlighted that fixed mortgage rates are not directly linked to the Bank of England’s base rate, but are instead influenced by swap rates, which reflect lenders’ expectations for future interest rates over two, five, or ten years.
Swap rates, Mendes said, move in line with government borrowing costs (Gilt yields), as both are driven by expectations around inflation and future interest rate decisions. When swap rates rise, it becomes more expensive for lenders to fund fixed-rate deals, and this cost is typically passed on to borrowers through higher rates.
Mendes also stated that the longer hostilities continue, the greater the risk of renewed inflationary pressure, which increases the chance that the Bank of England may raise rates rather than cut them. He suggested this would likely halt the recent trend of lenders cutting mortgage rates.
Despite these concerns, lenders have continued to cut rates this week. Barclays is set to reduce residential rates by up to 66 basis points, while Accord and Foundation are lowering buy-to-let prices. Other lenders, including Halifax, Nationwide, and Coventry, have also announced price reductions amid increased competition.
Source: Mortgage Strategy