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"The rising oil price could see a rapid reversal in mortgage rate cuts"

ended 08. October 2024

With the conflict in the Middle East escalating and concerns that Israel could target Iran’s oil and energy infrastructure, the oil price has started to rise and some believe $100 a barrel is now a real possibility. This volatility is already feeding through into SWAP rates and brokers have warned that it could well see the rate cuts of recent months go into reverse. Their views are below.

12 responses from the Newspage community

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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
The rapidly escalating conflict in the Middle East is already impacting oil prices, which in turn will affect interest rates and potentially reverse the downward trend in mortgage rates we’ve enjoyed in recent months. The Bank of England will be monitoring events closely and if they see them as inflationary, that may take another base rate cut off the cards altogether this year. Coupled with Rachel Reeves' plans for the Budget, this could mean a more disappointing end to 2024 than previously anticipated for UK borrowers and the broader property market. We live in highly volatile and fluid times and borrowers who have been hanging on for lower mortgage rates may be disappointed.
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Rohit Kohli
Director at The Mortgage Stop
This is a stark warning to those who expect rates to keep sliding: unexpected global events can cause upward shocks. Borrowers should prepare now and consider their options now to mitigate potential impacts. The conflict in the Middle East might push oil prices up to $100 a barrel, leading to higher living costs in the UK due to increased inflation. This could force the Bank of England to keep interest rates high or even raise them to control inflation. SWAP rates, which affect mortgage rates, have already started climbing. So, if you're counting on mortgage rates continuing to fall, think again. Unexpected global events can cause sudden spikes as this shows.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Rising oil prices will put a further squeeze on household budgets and potentially cause an inflationary spike. This is not what we need. The rising oil price could see a rapid reversal in mortgage rate cuts if the conflict worsens in the Middle East.
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Michelle Lawson
Director at Lawson Financial
The mortgage rate honeymoon period appears to be over. A return to chaos in the markets is once again looking possible, as the rising oil price impacts inflation that in turn feeds through into higher rates, or at least rates that are higher for longer. All that’s needed for a full house is a disastrous Autumn Budget and Labour seem determined to follow through on that front. Borrowers appear to be in for a bumpy ride in the next few months.
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Mark Eaton
COO at April Mortgages
We live in times when mortgage rates can turn in an instant. The current rise in oil prices caused by the ongoing conflict in the Middle East and the potential knock-on effect on UK inflation and monetary policy, highlights how exposed borrowers can be if they are remortgaging regularly. In such a volatile political and economic climate, certainty of mortgage payments is becoming even more valuable for a growing number of borrowers. We understand the concerns around volatile inflation, SWAPS and mortgage rates and that's why we have designed products that offer certainty when it’s needed most. Whether rates are fluctuating or the economic outlook is unclear, we provide homeowners and buyers with tailored options that help lock in stability and security for the long term, ensuring peace of mind in an unpredictable market.
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Justin Moy
Managing Director at EHF Mortgages
The rising price of oil and concerns about serious supply chain disruption could see a fast return to squeezed consumer budgets and a reversal in mortgage rate pricing, as inflation will undoubtedly start to worsen. With Swap rates already increasing a little this week, this may be a forerunner to the wider problem but, combined with a poorly-received Budget in a few weeks' time, we could quickly see a reversal of all that good work of the past six months.
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Ben Perks
Managing Director at Orchard Financial Advisers
How this feeds into monetary policy is not yet know, but rising oil prices will definitely see your average Brit paying over the odds for another essential commodity. We’ve seen how conflicts abroad can lead to higher prices here in the UK and this will be another costly example. Tesla drivers will be ok, but they could stomach the increase anyway.
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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
Mortgage mayhem could unfold on UK borrowers as inflation, fuelled by escalating Middle East tensions, threatens to send borrowing costs soaring, leaving homeowners scrambling to navigate a suddenly treacherous mortgage landscape. As the escalating conflict reaches a boiling point, the global oil market stands on a precipice, with potentially far-reaching consequences for the UK economy. This has set the stage for a volatile cocktail of surging energy prices, amplifying the risk of a recession in oil-importing countries such as the UK. Additionally, the spectre of rising oil prices threatens to reignite inflationary pressures just as the Bak of England was beginning to declare victory in its battle. If inflation spikes due to higher oil prices, the MPC might be compelled to maintain a more hawkish stance, potentially delaying rate cuts or even considering further tightening measures. Consequently, this would likely see lenders hiking rates after a period of significant reductions.
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Simon Bridgland
Director at Charwin Private Clients
As the oil price rises, swap rates have already started to head north and mortgage rates look set to go the same way. While only a few lenders have given indications of this revised upwards trajectory to date, expect more lenders to head in that direction as inflation follows the path of the price of oil. Wholesale markets have see a change in direction and if it’s more than a blip we will see the big six lenders also make their move upwards. Lenders wanting to fill their mortgage books for the year will help to keep a lid on things but that will only last so long. Borrowers need to brace for a change in direction and act accordingly.
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Andrew Montlake
Managing Director at Coreco
The escalation of tensions in the Middle East is another example of why borrowers should always act in a way that is right for them rather than trying to play the market.
As we have seen countless times over the past few years, events have a way of changing the narrative.
With the potential for the price of oil to rocket, and the corresponding damage to inflation expectations has already sent SWAP rates higher.
This could have a direct effect on lenders mortgage rates, causing anyone who has been waiting for lower rates in the short term to be disappointed.
It is only the strength of competition between lenders that could temper this, but the message to borrowers is not to be blasé about future interest rate falls.
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Elliott Culley
Director at Switch Mortgage Finance
When rates are falling it's easy to forget how volatile the current situation is. Just as previous global events have affected interest rates in the UK, the growing conflict in the Middle East is starting to take its toll and don't be surprised to see rates increase slightly while we wait to see how this and the October Budget play out.
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Patricia McGirr
Founder at Repossession Rescue Network
With oil prices edging towards $100 a barrel due to rising geopolitical tensions, UK inflation faces renewed pressure. Energy costs ripple across the economy, and with household budgets already tight, any spike could derail the Bank of England’s delicate inflation-control measures. We could see them forced to maintain or even increase interest rates longer than anticipated, directly affecting mortgage rates. SWAP rates have reflected this uncertainty, rising steadily since last week, which suggests markets are already pricing in this risk. The question is how long this crisis lasts, and how deep it cuts. Make no mistake: borrowers could be in for a bumpy ride.