Mortgage lenders could be forced to raise prices after the conflict in Iran caused government bond yields to rise overnight, experts say.
The US and Israel began a series of attacks on Iran on February 28, with the conflict expanding to include Iranian attacks on targets in multiple Gulf countries.
Treasury yields moved in response, with five-year Treasuries up about 19 basis points today, two-year Treasuries up about 12 basis points and 10-year Treasuries up about 14 basis points.
Investment bank Panmure Liberum said on a call that the issue is about energy supply and disruption: “The bigger geopolitical and economic risk is supply disruption, not just the initial price spike. How long the conflict lasts and how long supply chains are disrupted will be a key driver of the macroeconomic outlook.”
Several mortgage providers that are going to lower interest rates today are carrying out emergency revisions.
John Charcol, technical mortgage manager Nick Mendes, said: “In other words, borrowing costs have moved north again, and that matters for mortgage prices.
“The next MPC meeting is on March 19. In a rapidly changing, unpredictable backdrop, the picture could look significantly better by then, or it could deteriorate further. Either way, a short notice [Bank of England base rate] A cut is now clearly less likely than a week ago.
‘From Santander cuts today will have been signed off last week, before this latest jump in interest rates continued. With greater uncertainty and rising financing costs, it would not be surprising if lenders became more defensive.”
General H Chief Commercial Officer Pete Dockar said: “The war in Iran – particularly the hampered distribution of oil through the Strait of Hormuz – is already having an impact on global financial markets and swap rates are no exception.
“Pricing teams at mortgage lenders across the country are currently locked in debate, frowning at their spreadsheets and deciding whether to raise the price or if they can hold on – and for how long.
“This is a blow to the mortgage market as buyers felt truly optimistic for the first time in recent history; stable home prices and lower interest rates fueled healthy demand. But if there’s one thing we’ve had to get used to in recent years, it’s this kind of volatility. So as always, I return to the one consumer advice that never changes: talk to your broker and lock in a rate if it’s right for you.”
Mendes added that mortgage rates could rise more than any change in borrowing costs because lenders could become more defensive as visibility deteriorates.
He said: “So the message for anyone who needs a new rate, especially those who have a solution, is simple: don’t sit there. If you’re in trouble, get a new solution as soon as possible. An agent can still help you lock in something and keep options open if the price improves again before it’s completed.”