Nationwide has launched a wave of mortgage rate cuts as the Iran peace deal sends oil prices to a three-month low, raising hopes that the Bank of England could reduce borrowing costs before the year is out.
Britain’s biggest building society said it was reducing fixed-rate deals by up to 0.28 percentage points from today, in a move that will bring relief to borrowers who have faced higher rates throughout the Middle East conflict. The move comes as oil fell close to $82 a barrel yesterday, down sharply from the $126 peak reached at the height of the war, with markets now beginning to price in the possibility of interest rate cuts rather than rises.
The conflict had choked off oil and gas supplies from the region, pushing up inflation and prompting markets to bet the Bank of England would need to tighten borrowing costs further. With those pressures now easing, the outlook has shifted. Mohit Kumar, chief European economist at US investment bank Jefferies, wrote in a note to clients that “the next move… would be a cut.” Laura Lambie, senior investment director at asset manager Rathbones, told the BBC: “Cuts are more likely over time. We may well, if we’re lucky, see a rate cut by the end of the year because that hinges on the expectations for inflation.”
Mortgage experts said the peace deal had likely already pushed rates past their peak. Adam French, head of consumer finance at data provider Moneyfacts, said: “Mortgage borrowers will breathe a sigh of relief at the news of a peace deal in Iran. While we are far from being out of the woods yet, a lasting peace deal should dramatically reduce the risk of the Bank of England’s worst-case scenario for inflation and interest rates becoming a reality. Today’s news means mortgage rates, which have already been slowly falling for several weeks, have likely already passed their peak — at least until the next unwelcome crisis.”
David Hollingworth, associate director at broker L&C Mortgages, said the expectation of a deal had already begun moving the market. “Talk of a peace deal saw swap rates, which determine pricing for lenders’ fixed mortgage rates, ease back at the end of last week and that’s continued today. That should help to give mortgage lenders more room for manoeuvre and could pave the way for others to cut rates in response. Of course there’s been so much uncertainty that it’s been a bumpy ride for market rates, so we can’t assume that it’s one-way traffic, but a peace deal that persists should brighten the outlook for mortgage borrowers.”
The International Monetary Fund also welcomed the development. In a blog post yesterday, IMF managing director Kristalina Georgieva said the global economy appeared to have held up through more than three months of conflict. “Commodity prices, inflation and expectations for it, and financial conditions have all been impacted — but not yet in ways that signal a global slowdown. Much depends on the duration and intensity of the energy supply shock. The sooner it is resolved, the better — especially as supply will take time to recover given the significant infrastructure damage — and Sunday’s ceasefire announcement is welcome. But should the conflict or disruptions intensify, this is a clear risk to global growth.”
Analysts cautioned that the scale of the rebound will depend on how durable the peace proves to be, and that energy markets will take time to recover given the damage done to regional infrastructure during the conflict.
