Recent events in the Middle East, particularly the ongoing conflict involving Iran, have once again demonstrated just how quickly world events can influence the UK mortgage market. Many people understandably ask, “What has a conflict thousands of miles away got to do with my mortgage?” The answer lies in oil prices, inflation and something called swap rates.
Why does the price of oil matter?
A significant proportion of the world’s oil passes through the Strait of Hormuz, a shipping route close to Iran. Whenever there is concern that supplies could be disrupted, oil prices tend to rise.
Higher oil prices don’t just mean more expensive petrol. They increase transport, manufacturing and energy costs across the economy, which can lead to higher inflation. Recent market movements have reflected these concerns as tensions in the region have escalated.
What are swap rates?
Many people assume fixed mortgage rates simply follow the Bank of England Base Rate, but that’s only part of the story.
Most lenders price their fixed-rate mortgages using swap rates. These are effectively the rates at which financial institutions lend to one another over fixed periods, such as two or five years. Swap rates are influenced by what the financial markets think will happen in the future, rather than what is happening today.
If investors believe inflation will remain higher for longer, swap rates usually increase. When swap rates rise, lenders’ funding costs increase, and many respond by increasing fixed mortgage rates or withdrawing products. This is exactly what we’ve seen during periods of heightened geopolitical tension and rising energy prices.
Why this matters if your mortgage is ending?
If your fixed-rate mortgage is due to expire within the next six months, now is the time to start planning.
The good news is that many lenders allow you to secure a new mortgage several months before your current deal ends. That means you can lock in today’s rates, providing peace of mind if the market moves upwards.
Equally important, if mortgage rates improve before your new deal completes, a good mortgage broker can often switch you onto the lower rate, subject to lender criteria.
Why using a mortgage broker makes a difference?
One of the biggest advantages of using an independent mortgage broker is that we don’t simply arrange your mortgage and forget about it.
At Miles Rhodes Mortgages, we continually monitor the market. If a lender launches a better product before your completion date, we’ll review your options and, where appropriate, help you secure the improved rate.
If you’ve gone directly to your bank, they’re unlikely to proactively contact you if a cheaper product becomes available. In many cases, unless you notice it yourself and ask, you’ll simply remain on the rate you originally selected.
Every lender reacts differently
When markets become volatile, lenders don’t all move at the same speed.
Some increase rates immediately.
Others hold their pricing.
Some even become more competitive to attract business.
Because we’re whole of market, we can compare hundreds of mortgage products from a wide range of lenders, helping you find a solution that best suits your circumstances rather than being limited to one bank’s products.
Don’t leave it until the last minute
The mortgage market can change very quickly. We’ve seen lenders withdraw products overnight following movements in swap rates, leaving borrowers with fewer choices and higher costs.
If your mortgage deal is coming to an end in the next six months, we’d recommend reviewing your options sooner rather than later. Securing a rate now doesn’t necessarily mean you’re committed to it. In many cases, it simply gives you protection if rates rise, while still allowing the opportunity to move to a lower rate if the market improves before completion.
Need advice?
Whether you’re approaching the end of your fixed rate, considering a product transfer or simply want to understand your options, our experienced advisers are here to help.
At Miles Rhodes Mortgages, we’ll keep an eye on the market for you, explain your choices in plain English and work to secure the most suitable mortgage for your circumstances—not just today, but right up until your new mortgage completes
