Fixed mortgage rates are on the up - what comes next?

0:13Raymond Bulger: Hello and welcome to this edition of the FT Advisor podcast. I'm your host, senior reporter Tom Dunstan, and I'm delighted to be joined by John Charcoal, mortgage broker Raymond Bulger and open work mortgage broker Scott Taylor-Barr. A very warm welcome to you both. Thank you very much for joining me. Morning Tom. If you've cast your eye across any news platform over the past few months, you have certainly seen the conflict in the Middle East launched by Donald Trump at the end of February. Since then, it has had wide ranging consequences across the entire world, with disruption to the Strait of Hormuz, causing a surge in oil prices and impacting sectors across financial services.

0:49Raymond Bulger: One sector that has been very visibly impacted has been the mortgage markets, as according to data from MoneyFacts, average mortgage rates rose from 4.24 % in February to 5.35%, assessing a very noticeable impact on savers' finances. So why is this? What impact has this had on consumers? And what could possibly happen next? Those are the questions we will be looking at today. But to start off with, Raymond, I'm hoping I could come to you first. Would you be able to explain the relationship between oil prices rising and mortgages rising? I feel like some people find it a bit difficult to get their heads around.

1:29Scott Taylor-Barr: Well, it's all about inflation, really, because oil is such an important factor in so many of the things we buy. Now, apart from the obvious price of petrol and diesel at the petrol station, there will be many things that people perhaps don't even realise oils are factoring in the manufacturer. And then, of course, there's the transport to and from the store, etc., etc. So any increase in the price of oil will have a really big impact on inflation. Now, whilst I'm not suggesting we're in the same sort of ballpark as we were in 1973, I'm old enough to remember what happened then when a massive increase in the price of oil, about 300%, meant that inflation spiked at 27%.

2:16Scott Taylor-Barr: And so whilst I don't see inflation going into single figures, I do think that some of the current forecasts of inflation are too optimistic. And I would not be at all surprised to see inflation up at 6.5%, 7 % by the end of the year. And that clearly has a big impact on interest rates and hence mortgages.

2:34Raymond Bulger: And what exactly has happened as a result in terms of the mortgage markets? What's happened to it since this crisis kicked off and oil has gone so high?

2:45Scott Taylor-Barr: Well, if you look at fixed rates, they're about 1 % higher now than they were before this crisis. And so, I mean, one of the interesting facets of this is that whereas pre the war starting, the vast majority of clients were choosing a fixed rate because fixed rates were about half point cheaper than trackers. And obviously, they bought you security. We're now in a situation where the best trackers are about half point cheaper, at least on the initial rate than fixed rates. So the question of whether you buy a fixed rate or tracker is much more of a debatable point now than it was prior to the war.

3:26Scott Taylor-Barr: The big question people need to think about is where interest rates are going to be going over the rest of the year and perhaps into the early part of next year. And of course, the problem with that is we don't know what Trump's going to do. And that makes it really difficult to forecast things. But I suspect things will get worse before they get better. So although the last comments from the Bank of England, MPC, at their meeting at the end of April were quite dovish, and it may well be that rates perhaps don't go up at the next meeting, I suspect by that stage things will have got to the stage where they do feel they need an increase.

4:05Scott Taylor-Barr: And bank rate going up from the current 3.75 to somewhere around about 5 % by the end of this year I think is entirely plausible. A lot of that, of course, is already factored into mortgage rates. And so I think if people are thinking of taking a fixed rate now, they're probably not going to see rates go that much higher. But I think there's still scope for them to increase further.

4:29Raymond Bulger: Well, we will certainly get on to the Bank of England decision later. I'm very interested to hear your thoughts on that. But before we do, Scott, I'm also very interested to know how the changes since the crisis started have affected borrowers' attitudes and their behaviour. Have you seen any differences in what they're prioritising?

4:48Tom Dunstan: Oh, absolutely. The issue with any changes in interest rate, and it has the same impact on our markets as in any market, is it takes away confidence. And when people are making big decisions, they want to feel confident in those decisions. So once you destabilize that confidence, people sit on their hands. So the market is kind of split. You've got those who want to move or those who want to look at mortgages and those who need to. Now, in this kind of environment, all the people who want to. So the people who are thinking, yeah, it'd be nice to move house. It'd be nice to have another bathroom.

5:27Tom Dunstan: It'd be nice to have a bigger kitchen. They've all gone, I'm going to sit and wait. so what you're suddenly left with is is the market is then only those who need to move so it's those who have changed jobs that have to move because of that those who have outgrown their house and that the choice to wait is maybe not there anymore or they need to move to get into a catchment area for a school those people whose deals are coming to an end so they don't get a choice they're going to land on standard variable rate they don't do something so they need to make a decision so the mortgage market feels a lot smaller at the moment as you've removed all those people who were thinking of doing something who don't need to do something so they're sitting on their hands and it leaves you just dealing with those who who need to do something and those people are confused and concerned and worried about what the future is going to look like you know do I do something now do i wait three months you know they're unsure um because there's so much turmoil and so much chaos um and they don't know you know if i do i do something now and get this fixed rate i'm being offered at 4.9 percent or or do i wait to hope it goes down a little bit but then it might go up a little bit so it's causing a lot of a lot of concern and i think that's where you know advisors having to step in and be that calming voice to say well look you know these are the options this is what could happen this is what we can do so we can make this decision and we can still undo that decision and do something else at a later date if things change so I think you know advisors are really showing their worth at the moment.

7:03Raymond Bulger: And are these kinds of borrowers are they being attracted to one kind of product in particular are they leaning more on fixed rates or are they maybe looking at trackers is there anything that's standing out at the moment?

7:16Tom Dunstan: there's always a natural bias towards fixed rates people like stability they like to know what the payment's going to be um as ray quite you know so eloquently put it you know a few months ago it was a bit of a no-brainer because you looked at it and you went well the fixed rate's cheaper than the tracker um so unless i'm absolutely um sure that the base rate is going to come down why would i take the fixed rate um now it's a slightly more nuanced conversation because those that's kind of flipped around a bit and and you're paying for the stability now um i think at the current level most people are comfortable with paying for that bit of stability um as we say you know with the chaos that's around people are seeking stability so if there's not a huge margin between a fixed rate and the equivalent tracker rate they're still going for the fixed rate i think if that margin grows then that starts to be the point when people maybe take a beat and go hang on a minute there's quite a price difference between a tracker and a fixed rate and that's when people might you know have a bit more of a conversation about about tracker rates but at the moment and certainly for the people i'm speaking to that they're looking at the fixed rates and going yeah it's a little bit more expensive but i'm comfortable with that extra

8:31Raymond Bulger: cost to get that stability and i also wanted to ask about the impact on brokers such as yourselves have you noticed a a decrease in the amount of business you've been doing amounts of people inquiring about buying a house. Ray, maybe if I can come to you first, but I'd be very interested to hear your thoughts on that as well, Scott.

8:50Scott Taylor-Barr: Yeah, well, I think it's quite interesting if you look at the way house prices have moved in the first four months of this year. Quite surprisingly, just taking the Nationwide Index, prices are actually up by 2.9 % in the first four months of this year. I suspect we're going to start to see some slippage in prices now and over the full course of 2026 probably see a small negative figure maybe as scott said when things change as they have done recently apart from the increased cost of mortgages there's also the increased uncertainty are you going to lose your job that sort of thing people are going to be less likely to move so i think what we will see over the course of the rest of the year is a change in the split between remortgage stroke product transfer business and purchase business where you know the latter increases simply because people are moving less so this does I think present quite a good opportunity for first-time buyers because there are always some people who need to sell if there are less potential buyers in the market first-time buyers on the other hand have the luxury of being able to choose when to move in many ways.

10:03Scott Taylor-Barr: And one of the other interesting aspects, I think, if you look at mortgage rates, is that the split between the rate you pay for a 60 % LTV mortgage and a 95 % LTV mortgage, the difference in rates now is less than three quarter percent. So what do you have to pay for having only a small deposit is actually quite small. And so I think the most important thing for first-time buyers, for example, is to understand the market in the area they want to buy. So they start looking well before you want to buy and actually put in some cheeky offers. And you may well find that you can get a really good bargain over the course of the next year.

10:43Scott Taylor-Barr: But because the market's likely to remain subdued for some time, you're not in that difficult position whereby you feel you need to bid something up, because if you don't, you're going to lose out. So you can afford to take your time. So first-time buyers, I think, are in a really good position

10:57Raymond Bulger: now and uh scott if i could ask you the same question have you noticed any drop-off in your business or has it been relatively stable what's happened basically that no uh definitely seen a

11:08Tom Dunstan: drop-off um i mean we had an exceptional first quarter of this year you know we we did more business wrote more business in the first quarter than than we have um since the business started which was uh so this is year three and then that's taken a sharp drop-off in in april as i said before you know you you've lost all the people who are you know who were thinking of moving for the joy of it so to speak to upsides or whatever you're left with those who need to move so certainly from the purchase point of view we've seen a downward a downward trend in the number of people out there buying as Ray quite you know quite nicely said there um one of the interesting things is you know as we see rates go up and we see people move move out of the purchase market and we also see a slowdown in the house price growth so for those who can it actually turns into quite a good environment although the interest rates are a bit higher you can offset that increase in interest rates by maybe getting a property at a slightly lower a slightly slightly lower cost so you've got to look at it as a complete system as opposed to just looking at house prices in there on their own and mortgages on their own you've got to look at them together because what you often find as it is mortgage costs increase the cost of buying a house decreases and vice versa we have seen an uplift in the amount of people wanting advice around every mortgage so although we've seen a drop off in the amount of business and the people we're talking to around buying houses the amount of people talking to who are looking at the mortgage they've got and looking at it sooner so we're getting people who you know saying you know later this year my mortgage is up you know i want to try and understand what that's going to look like you know because we've still got people who are moving off some what now look like incredibly low fixed rates into this environment and obviously they've been protected for quite some time now on some some really really cheap interest rates and now they're coming out into a much different a very different interest rate environment and they're wanting to get a handle on what what is that going to look like to my monthly budget you know am I going to be spending an extra 200 quid a month on my mortgage or an extra 600 quid on the month on my mortgage so we're having a lot of conversations with people who are not moving but want to understand what's going to happen when my

13:22Raymond Bulger: mortgage ends later this year so uh as i mentioned earlier i did want to discuss the recent bank of england base rate decision uh they held a vote uh i believe it was eight to one in favor of maintaining the base rate at 3.75 which is obviously quite overwhelming but specifically I want to discuss the scenarios they set out in their decision. I think they mentioned three scenarios, scenario A, B, and C, of what could happen in the future regarding specifically the Iran war and what this would mean for their decision making in the future. I believe scenario A was the most optimistic and assumed that oil prices followed the futures curve and that there would be no second round effects.

14:06Raymond Bulger: Scenario B was slightly more pessimistic, assuming that energy prices only followed futures for six months and that there were some second round effects and then there was scenario c which i believe is the most disastrous assuming that energy prices rise very sharply and that there were very strong and persistent second round effects so i wanted to get your opinions on what could happen to the mortgage market under each of these scenarios because obviously we have no idea uh what could happen i'm sure the president of the united states doesn't currently know what's going to happen so it'd be very interesting to hear your thoughts on what could possibly happen under each of these scenarios maybe scott if i could come to you first

14:43Tom Dunstan: oh thanks tom okay so um obviously if you know scenario eight you know it's going to be a case of how how high and how long interest rates stay elevated so you know in scenario eight we're looking at you know this current situation where interest rates have risen they might rise as as Ray said earlier, a little bit more. That, in scenario A, would be reasonably short-lived, and they would probably fall back down again as energy prices came down and the bank felt that inflation was unwinding itself. Scenario B and C, obviously, are worst-case scenarios than that. That means that inflation is going to increase more.

15:26Tom Dunstan: The higher that the inflation projection goes and the longer they feel that it's going to going to be there the more aggressive they're going to have to be with their reactions to that so that could that's going to mean interest rates or base rate going higher and it's going to mean it's staying higher for longer the kind of other thing that sits alongside this is obviously there's what the mpc actually does and there's what the swap market thinks the mpc is going to do because what the swap market thinks the mpc is going to do is what's going to impact fixed rates and as we said that's what most people buy in terms of mortgages so you've got this kind of situation where there's the actual data the facts this is what we're going to do this is the data we're basing it off which everyone can look at but Then you've got this second round effect, which is everyone trying to guess, OK, then we know what they're going to do at the next meeting.

16:25Tom Dunstan: We can probably have a pretty good stab in the dark what they're going to do the next two meetings. But the swaps are trying to work out what they're going to do over the next eight to 10 meetings. And that's where you can get some interesting movement, because that's giving us an insight into where they feel that the data is taking. But yet, the longer the shorter it is, the longer this goes on for, the more impact that's going to drive up on inflation. And the more aggressive the bank is going to have to be with their interest rate movements. And that's just going to cost us all more across the board.

16:58Raymond Bulger: And, Ray, if I could ask you the same question, what do you think could happen to the mortgage market under each of the three scenarios I mentioned?

17:06Scott Taylor-Barr: Now, I completely agree with what Scott said there. And of course, the big problem is Trump's so unpredictable, it's really difficult to know exactly what's going to happen. Trying to forecast a day ahead, let alone a month or a few months ahead is difficult. But realistically, looking at what we know at the moment, we know that a lot of the infrastructure that is important in terms of producing oil, transporting oil has been damaged, and that's going to take quite some time to replace. So even if everything was to go back to normal tomorrow, you'd still be looking at months before the situation would turn to anything remotely like normal.

17:46Scott Taylor-Barr: And that's why I'm really quite bearish in terms of how long this problem is going to last. I think that the big question for the mortgage market is how high is inflation going to go and what's the Bank of England going to do in reaction to it? Now, the big problem the MPC has got is that however much they increase interest rates, it will have absolutely no impact on what's happening in the oil market. So we're back in this situation where we get something called stagflation, or as has been referred to more recently, I think we should now call it trumpflation. and because the Bank of England has a secondary target in addition to controlling inflation and trying to keep inflation at 2%, the secondary target is to promote economic activity.

18:35Scott Taylor-Barr: They know that the more they put interest rates up, the more that's going to damage economic activity, which is in any case going to suffer. So I think we're unlikely to see interest rates go up as much as one might expect if the bank was purely trying to control inflation. But I think it'd be very hard, particularly bearing in mind the criticism they had after the Ukraine war, for not increasing interest rates quicker. I think it'd be very hard for the bank not to increase interest rates, but really quite difficult at this stage to know how far they're going to go. As I said earlier, I don't think it would be surprising, however, if we saw a bank rate up to 5 % by the end of the year.

19:12Raymond Bulger: I think that is the worry amongst most people. Is there any hope for a base rate cut this year after this recent whole decision, or is that evaporated?

19:21Scott Taylor-Barr: I think that's completely evaporated. I mean, one of the points that the Bank of England governor made after the last meeting, which I think is worth repeating, is that the mere fact that the market prior to the war was anticipating bank rate cuts of a half percent this year, and they're now not anticipating that, that in itself is a more bearish approach. But that doesn't also the fact that, you know, when the facts change clearly the bank had to change their actions and by the time we have the next meeting there should be quite a bit more clarity in terms of how long this war is going to last if for example there are no signs at that stage that things are settling down then I think it'd be very surprising if we didn't see an increase in bank rate.

20:09Raymond Bulger: So with that in mind what would you suggest for advisors and consumers to get them through this turbulent period?

20:17Scott Taylor-Barr: Well, I think from an advisor point of view, it's really important to have a good handle of the political situation and the impact that has on markets. There's no point in seeing a client who says, I want a five-year fix, and you simply give them the cheapest five-year fix. You need to have a conversation with them about whether that's the right choice, whether a two-year fix will be better, whether a tracker or discount would be better. You can't really do that if you don't have a good understanding of the markets. so I think it's imperative to for advisors to actually have as good a knowledge as they can of that and there will be different views as to what the right type of mortgage is and indeed different clients will require different approaches but if you don't actually understand the basics it makes it more difficult to have that conversation

21:05Raymond Bulger: and Scott if I could ask the same question to you, do you have any suggestions for what advisors and consumers could do to weather this current storm

21:14Tom Dunstan: um advisors have been have been weathering storms very very well for the past few years if it's not one thing it's another i think that as races you know having an understanding what's going on is obviously really important but i think the key one is here it proves to all of us that trying to guess what interest rates are going to do is kind of a fool's game you know it wasn't that many months ago we're talking about base rate cuts and now we're talking about you know what's it going to go up to so i think it shows that world events can very quickly take over what an advisor thinks that the interest rates are going to do so you know i would say concentrate on on more of the knowns you know if someone's talking as ray said someone walks in as i want a five-year fixed rate i think the most powerful question in an advisor's arsenal is why why do you want a five-year fixed rate what's made you think that that's the right thing for you to do you know it could be that they've got a really really good reasoning as to why a five-year fixed rates for them it's got nothing to do with interest rates listen to listen to them challenge them make sure they understand the pros and cons of each decision if somebody you know is absolutely adamant that um that that they know what's going to happen to interest rates and this is the direction that they should be going in make lots of notes to that effect because they might be wrong and from a client's point of few, I think all they can do is seek out a good advisor and have a conversation with them and listen to what they've got to say and be comfortable being challenged and have a proper meaningful conversation about what type of interest rate is right for them at this moment in time.

22:54Raymond Bulger: And do you think they'd have to do that for an extended period of time? Or do you see us going back down to mortgage rates of say four or even three percent anytime soon anytime soon that's a

23:06Tom Dunstan: relative term yeah um i think i the the problem i mean the problem we've got you know is this is the results of a war and a war in a very sensitive part of the world economically speaking as ray said there's been a lot of damage to infrastructure and that infrastructure is going to take a long time to fix um so even if the strait that for me was open tomorrow and ship started flowing you've got a scenario where the ability to just start pumping oil out has been fundamentally damaged so we're not going to suddenly be able to create the volumes of oil and gas that we had before let alone the amount we now need to fill the backlog that's been generated so that's going to take a long time to to get back up to speed so i think we're we're going to see turmoil for quite some time i think once we get a relative amount of stability we might be in a position where we can see some small reductions in interest rates um at a future date i think we might be a little way off before we're all getting excited about rate starting with a three again and finally

24:24Raymond Bulger: I wanted to ask you both a bit of a predictive question. Considering everything we've talked about today was what's happened, the scenarios set up by the Bank of England, all that stuff. Two questions. What state do you think the mortgage market will be in by the end of the year? And is the future of the mortgage market in the UK a positive one? Ray, maybe I can ask that question to you first.

24:46Scott Taylor-Barr: I think the future of the mortgage market is always going to be positive insofar as there will always be people who want to buy property and they're going to need advice. And, you know, however much AI comes into the equation, AI is not going to be able to really discuss soft wax. And so I think that, you know, AI is going to be increasingly important as an admin tool. But I think most clients will still want to talk to a human being. And just looking ahead, after the local elections, the political impact may be relevant in terms of the property market, possibly. But looking further ahead to the next general election, I think it's all to play for at the moment.

25:29Scott Taylor-Barr: And should the Conservatives win, which at the moment obviously doesn't look very likely, but a lot can change in two or three years, their key plank of actually wanting to abolish stamp duty land tax on residential purchases would have a big impact on the market. So I think there are potentially some positive things for mortgage brokers to look forward to.

25:47Raymond Bulger: And if I could ask you the same question, Scott, do you think the future of the market is a positive one? and what state do you think it'll be in by the end of the year?

25:56Tom Dunstan: There's a great phrase that an old boss of mine said once that stuck in my head, and I try and repeat this to myself at times like this, which was, great captains are not born of calm seas. And I think we can say that there's many great captains being forged over the last few years. The mortgage market as a whole is a very resilient one. It is a market that ebbs and flows. there is it always has there has been economic shocks that have sent rates upwards there have been economic situations that have sent rates downwards you know it is rare that we have a period of extended calm so it's something we're relatively used to the the drivers of those changes can vary how prepared we are for them can vary but they always come and that's just part of being a mortgage advisor and part of working in the mortgage market.

26:53Tom Dunstan: I think when we have these extremes, I think from a mortgage advisor's point of view, it really proves your worth. As Ray said, you've got AI on the horizon, you've got lots of things looking to challenge the advisor. And I think in a very benign market, then they have a chance of doing so. I think when things get like this that's when people lose confidence in doing things for themselves and they want to seek out somebody who's an expert in the field and that's advisors and so I think from an advisor point of view although yeah it can be painful when the market gets like this it also underscores our value to clients.

27:38Raymond Bulger: So is it just worth remembering that the market has been worse places than this and made it through.

27:43Tom Dunstan: Yeah, exactly that. You can always look back and find a worse spot. So we're a resilient bunch. We've been through various economic shocks that have impacted the market and come out the other side. Whether we've come out the other side smiling or not is probably a very different story, but we've come out the other side and we'll come out the other side of this.

28:04Raymond Bulger: Well, I'm very glad we found a positive note to end on with such a bit of a dicey topic. So I just want to say thank you very much to my guests for joining me. I really appreciated hearing your thoughts. And thank you all for listening to this edition of the FT Advisor podcast.

28:38Tom Dunstan: Ugh. But real-time cash flow? Wow. Invoices that chase themselves? Even better. Books that automate? That's a big one. And I can keep track from my phone while I get the job done. No spreadsheet in sight. What a life. Do right by yourself and your business and search XERO for your free trial. Conditions apply. You're listening to this podcast, so I know you've got a curious mind. Here's a helpful fact you might not know yet. Drivers who switch and save with Progressive save over$900 on average. Pop over to Progressive.com, answer some questions, and you'll get a quick quote with discounts that are easy to come by.

29:16Tom Dunstan: In fact, 99 % of their auto customers earn at least one discount. Visit Progressive.com and see if you can enjoy a little cash back. Progressive Casualty Insurance Company & Affiliates. National average 12-month savings by$946 by new customers surveyed who saved with Progressive between June 2024 and May 2025. Potential savings will vary.