Recent cuts in interest rates could be reversed as the Middle East crisis and rising oil prices threaten economic chaos, finance experts have warned.
It is feared that the fall-out will drive up inflation and, in turn, cause the Bank of England to halt or reverse cuts in the base rate.
So-called swap rates, which are the interest rates that financial institutions charge each other to borrow money, have been edging up in recent days.
As a result, there are already signs that banks and building societies will reverse recent cuts in home loan interest rates.
This morning, the Coventry Building Society, announced it is hiking selected home loan interest rates, sparking fears other major lenders will follow suit in the coming days.
Katy Eatenton, Mortgage & Protection Specialist at Lifetime Wealth Management, said: “Now that a bigger lender such as Coventry have hiked, more lenders will likely follow suit.
“There is currently huge uncertainty around both the upcoming Budget, specifically how that Budget will be funded, and the ongoing conflict in the Middle East. Hopefully the increases aren’t too dramatic but this could be a symbolic turning point for the mortgage market.”
Iain Swatton, Director at Exemplar Financial Services, told Newspage: “The Coventry’s decision to raise residential mortgage rates signals that global tensions, particularly in the Middle East, are starting to affect the market.
“Combined with ongoing uncertainty in the UK economy, this move is a clear warning that other lenders may follow suit in the coming days.”
Adam Stiles, Managing Director at Helix Financial Partners, said: “Swap rates have risen sharply this week, possibly spooked by the rumour mill and rhetoric coming out of the Treasury for the upcoming Budget, the conflict in the Middle East, and unexpected economic data released in the US recently.
“Time will always tell with these things but for now, we don’t expect to see many lenders decreasing rates any further for the time being on certain products.”
Lea Karasavvas, Managing Director at Prolific Mortgage Finance, warned people not to expect any further cuts in home loan rates in the near future.
“At the close of play yesterday, swaps stabilised a little following an upward trajectory but we do expect more lenders to follow Coventry’s lead before the week is out,” he said.
“Our advice to borrowers is to lock down on opportunities available ASAP and hedge the market, as the threat of increasing oil prices and the Middle East conflict could see a negative impact on inflation.”
Rohit Kohli, Director at The Mortgage Stop, said: “The downward trend in interest rates was never going to be a smooth slide down and there were always going to be bumps in the road.
“Coventry increasing this morning following the economic reaction to events in the Middle East was inevitable in some sense and will probably start the domino effect of other major lenders moving as well.”
Riz Malik, Independent Financial Adviser at R3 Wealth, described the situation as a “wake up call to those expecting rates to continue to fall”.
Hannah Bashford, Director at Model Financial Solutions, said: “With the Budget looming, markets are jumping around like a toddler on a trampoline.
“Smaller lenders hiked rates yesterday and now Coventry follows suit. We could see more rate hikes over the next few days from the bigger lenders but with Virgin decreasing rates yesterday your guess is as good as mine.”
