Renewed war reignites inflation expectations; UK swap rates surge, threatening to end the mortgage "rate cut dream"

Golden Ten Data reported on March 5 that a key indicator reflecting expectations for the future trajectory of UK interest rates has risen to its highest level this year, intensifying concerns about another increase in mortgage costs. The two-year swap rate, which serves as the basis for lenders to price mortgage products, climbed to 3.60% on Thursday, marking a new high since October. On February 27, the day before the US and Israel launched airstrikes against Iran, this rate was at its lowest point since mid-2022. According to Moneyfacts, the average rates for two-year and five-year fixed-rate residential mortgages edged up to 4.83% and 4.95%, respectively, on Thursday. Typically, sustained volatility in swap rates takes about a week to be reflected in changes to mortgage rates. Adam French from Moneyfacts pointed out: "Global geopolitical events drive the market, the market influences swap rates, and swap rates ultimately determine the loan options available to borrowers. Some lenders have already suspended or reassessed their previously planned rate cuts."