Base Rate held, but borrowing costs remain volatile

• Volatility has defined the modern mortgage market, with average rates swinging between 2.42% and 6.53% since April 2021. Equivalent to around £580 a month, or nearly £7,000 a year, on a typical £250,000 mortgage.
• The Moneyfacts Average Mortgage Rate today stands at 5.67%, up from 4.89% at the onset of the conflict in Iran.
• Mortgage pricing is market-driven, influenced by gilts, swap rates, inflation expectations and geopolitics. Not just moves by the Bank of England, but expectations of where rates are heading.
• Markets react rapidly to shocks, with borrowing costs rising sharply within days or weeks, often ahead of central bank action.
• UK borrowers are particularly exposed, with a reliance on shorter-term fixed deals leaving many more vulnerable to sudden repricing than in markets dominated by longer term fixes.

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.”