The shock's first stop is the price of credit

Nearly all of the UK's major mortgage lenders increased the cost of home loans over the past few days. For a household whose five-year fixed deal is ending, the arithmetic is blunt: borrowing the same amount at a typical rate costs more than 5,000 pounds a year extra. Rachel Springall of Moneyfacts said borrowers who expected mortgage rates to drop have had those hopes dashed, and urged them not to delay seeking advice.[1]

The push comes from the energy side. Brent crude rose 2.8 per cent to 100.70 dollars a barrel, its first triple-digit price in nearly six weeks, and the US benchmark grade gained 2.4 per cent to 95.28 dollars a barrel. Regular gasoline averages 4.22 dollars a gallon and diesel 5.94 dollars. Rising energy prices are adding to inflationary pressures, and the price of new mortgage deals moved with them: since the Iran war began, global economic uncertainty has pushed up the cost of those deals.[1], [2]

Which balance sheet carries it?

A fixed rate does not move until the deal expires, usually after two or five years, and the vast majority of homeowners in the UK hold that kind of loan. The increase therefore arrives one expiry at a time, as each deal runs out, rather than landing on every household in the same month. That is why the six-month window many lenders offer for locking in a new rate matters: it lets a household choose, within limits, the date on which the higher cost starts.[1]

A week ago in this space I read the Bank of Canada's decision as a headline carried by gasoline while core inflation stayed close to 2 per cent, a cost increase that had not then found a wage channel. The mortgage market in the UK shows where such an increase can travel instead. The channel here is the price of credit and the balance sheet carrying it is the household's own: it meets the same fuel bill once at the pump and again in the monthly repayment.[3], [1]

The signal to watch

There is a measurable way to check this. If Brent crude stays at or above 100 dollars a barrel, the cost of a new mortgage deal stays higher at the end of December than it was in the first week of September, and the average five-year fixed rate published by Moneyfacts is the series that shows it. If crude falls back and that average falls with it, the credit channel closed faster than the fuel channel opened, and the reading here weakens.[1], [2]