Mortgage volatility continues despite base rate hold as costs swing sharply | Moneyfacts

While the Bank of England has opted to hold the base rate, mortgage markets remain highly sensitive to global events, with borrowing costs continuing to shift sharply in response to economic and geopolitical shocks.

Average mortgage rates have ranged from 2.42% to 6.53% since April 2021, equating to swings of around £580 per month (£7,000 per year) on a typical £250,000 mortgage. The current Moneyfacts Average Mortgage Rate now stands at 5.67%, up from 4.89% at the onset of the conflict in Iran.

Pricing is increasingly driven by market forces rather than base rate decisions alone, with gilts, swap rates, inflation expectations and geopolitical developments all influencing movement. Markets are also quick to react, often pricing in changes before any formal central bank action is taken, meaning borrowing costs can shift within days or weeks of major global events.

UK borrowers remain particularly exposed due to a continued reliance on shorter-term fixed-rate deals, leaving many more vulnerable to sudden repricing compared to markets dominated by longer-term fixes.

Since April 2021, mortgage rates have moved sharply between highs and lows, underscoring a sustained period of volatility in the market.

Together, the data highlights a mortgage landscape where stability in policy does not necessarily translate into stability in pricing, as global developments continue to drive rapid shifts in borrowing costs.

Adam French, Head of Consumer Finance at Moneyfacts, said:

“The decision to hold rates is already working as a form of tightening. Markets had been pricing in a series of cuts before the conflict in the Middle East, and the removal of those expectations has pushed borrowing costs up, even without a formal base rate rise.

However, the Bank of England is taking a calculated risk that it can afford to wait as it assesses how inflation from the war in Iran feeds through. But with prices already more than 28% higher than in 2020, the danger is that inflation expectations become embedded again. At the same time, markets are running ahead of the central bank’s rate setters in anticipation that more persistent inflation will require further action to contain second-round effects, adding to recent volatility.

That volatility has defined the mortgage market for the last five years. Since April 2021, average rates have moved from a low of 2.42% to a high of 6.53% and now sit at 5.67% following this latest crisis. For a typical £250,000 mortgage, that equates to a swing of around £580 a month – almost £7,000 a year.

If the Bank misjudges the persistence of inflation again, it risks being forced into sharper action later, prolonging the cycle that continues to leave borrowers navigating uncertainty with little more than guesswork.”