Why Are Mortgage Rates Rising Even Though the Bank of England Base Rate Hasn’t Changed?

You might have noticed that mortgage rates have been creeping up recently, even though the Bank of England hasn’t changed its base rate. So, why is this happening? The answer lies in something called swap rates — and recent global events, like the conflict in Iran, are having an impact.

What Are Swap Rates?

Most mortgages in the UK are offered on a fixed interest rate, usually for two, three, or five years. This means the rate you pay stays the same during that period. Lenders fund these mortgages partly with their own money and partly by borrowing from the wholesale market.

To manage the risk of interest rate changes, lenders use swaps. A swap is a financial arrangement where one bank pays a fixed interest rate to another bank in exchange for receiving a variable (or floating) rate. This protects the lender if interest rates rise while allowing them to offer fixed-rate mortgages to customers.

In simple terms, swap rates are a way for banks to lock in the cost of borrowing money, and they are a key factor in setting mortgage rates.

How Global Events Affect Mortgage Rates

When investors expect interest rates to rise, swap rates go up, making it more expensive for lenders to borrow money. Recent events, like the airstrikes in Iran, have caused economic uncertainty, which has increased swap rates. Stock markets have fallen, energy prices have risen, and inflation expectations have shifted — all of this affects mortgage costs.

Even though the Bank of England has kept the base rate at 3.75%, swap rates reflect what the market expects interest rates to do in the future, not just the current rate. This is why mortgage rates can increase independently of the base rate.

The Role of Risk

Lenders also factor in risk. With the current global and economic uncertainty, they need to protect themselves against market volatility and possible drops in property values. This means some mortgage deals are being repriced or withdrawn quickly, sometimes faster than usual.

What Does This Mean for You?

• Mortgage rates may continue to fluctuate rapidly depending on economic news and global events.

• Swap rates are currently higher than they were a few months ago, which has pushed up mortgage offers.

• If the conflict stabilizes and markets calm down, rates could start to fall again.

While a fixed-rate mortgage provides certainty, it’s important to understand that the rate you see today reflects market expectations, risk, and global events, not just the Bank of England base rate.

How We Can Help

Navigating these changing rates can feel overwhelming, but you don’t have to do it alone. As a trusted mortgage broker firm, we can:

• Explain the factors behind your mortgage rate in plain English

• Help you compare deals across multiple lenders to find the best fit

• Guide you on timing your mortgage or remortgage for the best possible outcome

• Support you with all the paperwork, so the process is smooth and stress-free

If you’re thinking about a mortgage or remortgage, get in touch with us today. We’ll help you make sense of the market, find the right deal, and ensure you’re confident in your financial decisions.