Iran war expected to trigger rising mortgage interest rates

The war in Iran will bring an abrupt end to the downward trend in mortgage interest rates, mortgage advisory chains Van Bruggen Adviesgroep and De Hypotheekshop told RTL Nieuws. Some mortgage providers are already increasing interest rates.

“We expect the downward trend in the popular 10-year-fixed mortgage rate to end this week,” Oscar Noorlag of Van Bruggen told RTL. “That decline lasted eight weeks. This is because lenders often follow interest rates on the financial markets with a lag.”

Last week, the money markets reacted cautiously to the American and Israeli attacks on Iran, hoping that the unrest in the Middle East would end quickly. But the bombings continue, and energy prices are rising sharply due to the blockade of the Strait of Hormuz, so the money markets are factoring the increased risks into the interest rates.

The interest rate for a 10-year Dutch government bond rose above 3 percent on Monday for the first time in a year. Mortgage rates will react with a few days’ delay.

The extent to which the interest rates will rise depends on how the war develops. “It’s uncertain for the time being how strongly mortgage rates will develop in the coming weeks, but for now, the trend will be rising rather than falling,” Noorlag said. “The first interest rate hikes for this week have already been announced.”

In 2022, when Russia invaded Ukraine and sparked an energy crisis, mortgage rates also rose sharply.

“The war in Ukraine wasn’t the cause of the first interest rate hike in 2022, but it did accelerate it significantly through higher energy prices, higher inflation, and rising capital market interest rates. Whether that scenario will repeat itself is still too early to say,” Martin Hagedoorn of De Hypotheekshop told the broadcaster.

There are approximately 40 mortgage lenders active in the Dutch market. Late last week, Vista, Allianz, a.s.r, Centraal Beheer, MUNT, and NN already raised the interest rate on their 10-year mortgages with National Mortgage Guarantee (NHG) to between 3.4 and 4 percent. The average is now around 3.7 percent.