A lot has changed since our Mortgage Market Overview in February, which pointed towards modest growth and improving confidence in the market.
Since then, we’ve seen war breakout, a rise in energy prices and an update from the Chancellor. With threats to the cost of living, what’s the impact on the mortgage industry?
"It seems to go from the sublime to the ridiculous these days, and just as the scene was set by falling inflation and job vacancies for another rate cut this month, events beyond our control change the landscape once more.
This week has seen swap rates increase substantially on a day-by-day basis, to the point that lenders will now be repricing upwards rather than down. The hope is that this is just an initial spike before markets stabilise but the longer the conflict continues, the more hopes of a rate cut in the short term remain dashed.
That said, lenders remain keen to do business and the competitive edge may help to reduce some of the short term rises. The message to clients is very much to get things moving rather than waiting any longer."
Andrew Montlake, Head of Network Proposition
Spring Statement
Chancellor, Rachel Reeves, reaffirmed the government’s commitment to affordable housing, with those taking a fixed-rate mortgages now £1,300 a year better off. Here are the key points from the Spring Statement and Office for Budget Responsibility (OBR):
- GDP growth is expected to slow to 1.1% in 2026, rising to 1.9% by 2029/30
- House prices are forecast to rise between 2.4% and 2.9% annually (2026-2030)
- Household disposable income expected to grow by 0.6% to 0.9% annually (2026-2030)
The Middle East
Mortgages have benefited from the Bank of England reducing the base rate down to 3.75% - is that about to change? The recent events in the Middle East could have a significant impact on the market.
Lenders may be forced to increase prices as a result of the conflict, following a rise in gilt yields. The impact on the mortgage industry depends on how long this conflict will last and the wider geopolitical outlook.
According to the National Institute of Economic and Social Research, if the current level of energy costs were to last throughout 2026, we could see interest rates rise to 4.5% heading into 2027. This projection is based on the 3.75% base rate staying as it is.
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