Repricing and product withdrawals from a range of lenders may be a signal that weeks of rate cuts may have come to an “abrupt halt” due to economic uncertainty and rising oil prices.
Coventry for intermediaries, Co-operative bank for intermediaries, Molo and LiveMore all said today they will either withdraw products or raise rates by the end of the week.
The moves by the lenders follow mixed messages from the Bank of England where last week central bank governor Andrew Bailey said that there was room for its rate cuts to become “more aggressive”.
But a day later the Bank’s chief economist Huw Pill warned against cutting the price of borrowing “too far or too fast”.
Traders have been betting that the Bank of England will cut rates by a total of 0.5% in two of its final three rate-setting meetings this year to bring the base rate down to 4.50%.
This comes despite the Bank’s Monetary Policy Committee voting to hold the rate at 5%, following a 0.25% cut in August. Its first reduction in four years.
Inflation came in at 2.2% in August, unchanged from July, just above the BoE’s 2% target.
Heighten fighting in the Middle East between Israel and Arab militias has pushed up oil prices over the last month, which could in turn push up inflation and limit rate cuts.
Brent crude has risen 7.4% over the last four weeks to $77.18 in mid-morning trading today.
This comes as Chancellor Rachael Reeves prepares to deliver the Labour government’s Budget on 30 October, where she will have to plug a £22bn black hole in the public finances left by the previous Conservative administration.
Reeves has said it will not increase income tax, VAT or National Insurance in its first Budget for 14 years.
But has not ruled out rises to capital gains, inheritance tax and other levies surrounding pensions.
L&C Mortgages associate director David Hollingworth says: “The mortgage market has seen rates falling in recent months but that may be coming to an abrupt halt.
“Fixed-rate pricing depends on what the market anticipates may happen to interest rates and uncertainty over the forthcoming Budget, mixed messages from the Bank of England and global unrest is pushing costs back up for lenders.”
The move comes as swap rates, on which mortgage rates are based, have risen over the last month.
Two-year Sonia swaps were 4.067% on 7 October up from 3.918% a month ago, according to Chatham Financial. Five-year rates were 3.814% up from 3.560% over the same period.
John Charcol mortgage technical manager Nicholas Mendes adds: “In recent days, a range of factors has unsettled market expectations, leading to a rise in gilt yields and swap rates.”
Mendes points out: “Markets had been pricing in rate cuts for November and December, but expectations for December have softened slightly, reflecting this uncertainty.
“Additionally, geopolitical tensions, particularly concerns about the Middle East conflict and its potential impact on oil prices, have added to market volatility.
“Given these factors, we expect to see some lenders begin to reprice their products, particularly among specialist lenders and smaller building societies.
“If swap rates continue to rise, it’s likely that the lower loan-to-value best mortgage deals which are already slim in margins for lenders will start to reprice with slight adjustment upwards, with more widespread repricing if competitors do the same.”
