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Continuing fall in oil prices ‘may cause rocketing mortgage rates’

Fears are growing that a continued decline in oil prices could see mortgage rates rocket.

In the past six months, the price of Brent crude oil has more than halved from around $112 per barrel in June 2014 to roughly $47 per barrel today.

Mortgage rates are at all-time lows at present, with competition fierce among lenders, but experts warn oil price falls could ultimately push up mortgage rates.

Precise Mortgages managing director Alan Cleary says the problem is “global” and not restricted to the major oil-producing economies. As a result, he says, swap rates could spike, causing the price of fixed rates to rise.

Writing for Mortgage Strategy this week, Cleary says: “I could easily foresee a situation where ultra-low petrol prices may make us smile at the pumps but hit swap rates hard, forcing up the cost of fixed-rate products.”

Your Mortgage Decisions director Dominik Lipnicki agrees.

He says: “I agree to the extent that the oil market slide will have a knock-on effect for other economies and in the short term that could well see our mortgage prices increase.”

Middleton Finance managing director Daniel Bailey says other factors could also affect mortgage pricing this year.

He says: “Lenders have started the year with some really strong products on offer and clearly have good targets for lending in 2015. 

“That said, continued uncertainty in global markets, the eurozone, fears about the general election and other factors will always impact how lenders feel about risk.

“Falling oil prices have a huge impact on the global economy. If they continue to slide then yes, you would think swap rates will fluctuate and lenders will have to have a rethink about rates. 

“If this oil market depression continues, I agree we could see mortgage pricing rising.” 

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  • The Cynical Broker 19th January 2015 at 10:23 am

    All in all, a very poor article, with no actual explanation as to why rates will “rocket”, just the inflammatory statement that they may ! Alan (rent-a-quote) Cleary at his most vague !

  • William McEwan 15th January 2015 at 1:17 pm

    Supply always tries to match demand.
    If supply is increased prices drop. Areas that were profitable before the price drop will now be unprofitable and production in those areas will decrease or stop. So supply will drop and prices will go back up again. (I know that’s really obvious I just thought I would point it out)

    Using the term rocket is not good for the reasons listed on previous posts.
    If you dumb down a publication it seriously affects the demographic of the readership.

  • Freelancer Financials 14th January 2015 at 8:21 pm

    I don’t think it’s clear cut, so many factors influence interest rates. For instance, Norway’s central bank cut interest rates to a record low as the country reels from the impact of the slump in oil prices.

    Lowering oil price reduces inflation worldwide, and is likely to delay interest rate increases in rich countries. This creates an opportunity for oil importing countries, such as China and India.

    The UK Government clearly would like to keep interest rates low as possible for as long as possible, even though many of its supporters are net savers who are losing out. I personally feel that Interest rates are not going to rocket in 2015. Of course nothing is certain.

    Over time, lower energy prices shoud boost economic activity, despite the negative impact it will have on the energy sector.

    Some analysts believe Saudi Arabia and the US are deliberately pushing oil prices lower in order to put pressure on Putin.

  • Realeconomic 14th January 2015 at 5:33 pm

    I am surprised anyone is surprised at the use of language, it’s tabloid stuff that gets attention for the writer and a bad name for business. Rates are going nowhere, no reason to rise and nowhere to fall. Grow up commentators.

  • Good Mortgage Man 14th January 2015 at 3:41 pm

    The truth is that any major global event could seriously affect confidence in the markets, which in turn would have a negative effect on swaps. That is just life I am afraid. It won’t stop us living our lives, buying houses, having kids and taking mortgages.

  • Dermot Brannigan 14th January 2015 at 12:36 pm

    What a thoroughly depressing article.

    I think most people think rates will increase, it’s just a case of when & by how much. But no one is using the word ‘rocket’. You’ve used that to describe the effect of rates increasing yet you have not attributed this quote to anyone. Was it made up by the author? If so, it’s irresponsible.

    Perhaps the point of the article was to gain comments & the fact it’s angered me enough to do so, would suggest it was perfectly reasonable.

    But there is a reason advisers cannot use the term ‘rocket’ when suggesting what a client may expect from their investment.

  • Richard Rouse 14th January 2015 at 12:13 pm

    Michael, please tell me you don’t think Base Rate has anything to do with the cost of mortgages!

    You don’t, do you?

  • Chris Hulme 14th January 2015 at 12:05 pm

    Do we really need to panic about swaps too much in the event of oil prices being depressed at $45/ barrel with 5 year swap rates are at 1.45%? After all a year ago with oil at $110/barrel, 5 year swaps were at 2.2% and we were very happy with product pricing at that point!

    Of course there’s other factors in this mix but lets keep a level head and not panic about things….. perhaps talk about aspirations, hopes, goals, positive commitment rather than ‘fear’….

  • Michael.White.BoutiqueCapital - Bridging Loans 14th January 2015 at 11:46 am

    Em-mm, I think not……. forward rates rapidly rising when base rates continue to stay fixed to a floor of 0.5%??

    Even stubborn fools like ‘Expert’ Economist , Andrew Sentence accepts the low rates are a very good thing for the UK economy and any howls about deflation are completely misplaced; as I would suggest are any headline grabbing comments about rates ‘rocketing’ due to low petrol costs…..