13th May 2026
The following is a summary of an article by Simon Pittaway published on the Resolution Foundation substack. He digs into the data to figure out why mortgage rates are rising, even as the Bank of England holds off on rate rises.
Most people just want to know how much their mortgage is costing but if you are about to change you may wish to take account of what is happening to rates that can perhaps severely affect what you can afford going forward.
To read the full article see the link at the foot of this page.
The Resolution Foundation article explains a puzzle many households are facing: mortgage rates have risen sharply in recent months even though the Bank of England has kept its policy rate unchanged. The reason is not lender greed or hidden Bank of England tightening — it is market expectations and uncertainty.
Mortgage rates follow OIS markets, not just the Bank Rate
Mortgage lenders hedge their risks using SONIA Overnight Index Swap (OIS) contracts.
These swaps determine the fixed rates lenders must pay to match the fixed rates they receive from borrowers.
So when OIS rates rise, mortgage rates rise, even if the Bank of England does nothing.
In April, 2‑year OIS rates rose by 1 percentage point and 5‑year OIS rates by 0.7 points — almost exactly the same increase seen in mortgage rates.
Why OIS rates jumped: markets expect higher future interest rates
Financial traders have revised their expectations:
In February, markets expected two rate cuts in the coming year.
By April, they expected only one.
The expected average Bank Rate over the next two years rose by 0.25 percentage points.
Even this modest shift was enough to push OIS rates up sharply.
But expectations alone don’t explain the full rise — uncertainty does
The article’s key insight is that uncertainty itself has become a major driver of mortgage pricing.
When markets are nervous — geopolitical shocks, political instability, inflation risks — investors demand a risk premium to protect themselves from future rate volatility.
This uncertainty premium widens the gap between:
survey expectations (what forecasters think will happen), and
market pricing (what traders are willing to bet money on).
The article shows that the biggest gaps historically occurred during periods of high inflation and fiscal instability — exactly the conditions the UK is facing again.
The Iran war and political instability have amplified market nerves
Mortgage rates rose by around 1 percentage point between February and April — costing a typical first‑time buyer with a £220,000 mortgage about £100 a month extra.
This rise coincided with:
the outbreak of the Iran war
renewed geopolitical risk
UK political uncertainty
rising volatility in interest‑rate expectations
Markets are pricing risk, not just the Bank Rate.
A fixed‑rate mortgage market is more volatile than a variable‑rate one
The article makes a subtle but important point:
In a variable‑rate world, mortgage costs move mainly when the Bank of England moves.
In a fixed‑rate world (the UK today), mortgage costs move when markets think the Bank might move — or even when markets are simply nervous.
This makes the modern UK mortgage market more sensitive to global shocks and political uncertainty than it used to be.
Bottom Line
Mortgage rates are rising not because the Bank of England has raised rates, but because:
markets expect fewer cuts
uncertainty has surged
investors are demanding a risk premium
OIS swap rates — the benchmark for mortgages — have jumped
In today’s fixed‑rate‑dominated mortgage market, uncertainty itself raises mortgage costs, even when the Bank of England stands still.
If you reached his far and want to read the more detailed article go [b]HERE[/b]