Rising geopolitical tensions and volatility in global oil markets could soon translate into higher mortgage costs for UK homeowners, landlords and property investors, according to Pure Property Finance.
Recent increases in oil prices, driven by ongoing global conflicts, are raising concerns about renewed inflationary pressure.
While the link may not be immediately obvious, movements in energy markets can have a direct downstream impact on borrowing costs within the UK housing market.
Tom Rowlands, property finance specialist at Pure Property Finance, said: “There is often a clear chain reaction that starts with global conflict and ends with what mortgage rates people are on each month.
“When oil prices rise, it increases the cost of energy and transport, and therefore has a knock on effect with inflation, pushing this back up.
“In response to this, lenders and property markets are anticipating higher interest rates for longer, and that feeds directly into what people are paying towards their mortgage prices.”
Higher inflation expectations typically feed into swap rates, which lenders use to price fixed-rate mortgage products.
As a result, even borrowers who are not directly affected by rising household energy costs may still see mortgage pricing increase.
Recent data revealed that average 2-year fixed mortgage rates remain above 5%, a sharp contrast to the sub-2% rates available prior to the pandemic.
Even relatively small rate movements can significantly affect affordability.
For example, a 0.5% increase on a £250,000 mortgage could raise monthly repayments by approximately £75 to £100, equating to more than £1,000 annually.
Rowlands added: “You don’t actually need interest rates to rise for mortgage costs to increase. The markets will move first, and lenders will react almost instantly to cover their own fees.
“Even if the UK has nothing to do with any of the conflicts, the UK will usually still get hit with increased costs along the way.”
He concluded: “For borrowers, it’s about being proactive.
“If your deal is ending in the next six months, it’s worth exploring options early and potentially locking in a rate to protect against further movement. Waiting in uncertain conditions can be a gamble.”
