Volatility spreads from oil to mortgages

Oil prices fell by the most in four years yesterday to less than US$90 a barrel and government borrowing costs eased. Attempts by US and European administrations to calm markets, alongside reports of a massive release of oil reserves by the International Energy Agency, have worked to some degree, though markets remain febrile. 

More than ten days since the conflict began, the outlook is so uncertain that it's still only possible to discuss scenarios. Capital Economics published a fresh set of possibilities yesterday, which it admitted hinge on assumptions about the extent to which each country in the Middle East can divert its oil and LNG exports around the Strait of Hormuz, and the extent to which each country’s energy exports could potentially be taken offline indefinitely were there to be lasting damage to energy infrastructure.

The company outlines three possible paths for the conflict. In the first – a short, sharp confrontation lasting only a couple of weeks – around 350 million barrels of oil could be lost, equivalent to roughly 1.4% of global annual exports. Even so, the global market could remain in surplus, meaning prices would likely retreat relatively quickly.

More disruptive outcomes emerge if the conflict drags on. A three month confrontation with limited damage to energy infrastructure could remove around 5–6% of global crude and LNG exports, though flows might recover in the second half of 2026 if facilities remain largely intact. A more severe scenario would involve lasting damage to Gulf energy infrastructure, potentially cutting about 8% of global exports and pushing oil prices into triple digits through 2026, with effects extending into 2027.

Pulling products

UK lenders have continued to raise mortgage rates or pull products from the market altogether. Lenders withdrew 308 mortgages on March 9, compared with 935 pulled on September 27, 2022 amid the mini-Budget turmoil, according to Moneyfacts data covered by Reuters.

This is a defensive move by the banks and it should correct as rate expectations stabilise. Nevertheless, that could take time and rates are unlikely to return to previous lows while the volatility in energy prices continues. 

When we published Monday's note, markets were pricing in a 70% chance of a Bank of England rate hike this year. That has already unwound, though as of yesterday investors had also priced out all expectations of a rate cut this year. The balance of votes at the Bank’s March meeting next week will be closely watched and may offer clues as to whether policymakers are prepared to look through short term spikes in energy prices at meetings later this year. 

“If energy prices quickly decrease, the MPC may resume easing in April or June, aligning with our forecast for one more rate cut by the end of Q2," Oxford Economics said in a note to clients covered by the Times. “Additional increases in oil prices could lead to a more prolonged pause. However, considering the policy rate is still in restrictive territory, the MPC is unlikely to hike unless inflation expectations rise significantly.”

Beneficial changes

Persimmon yesterday said it had achieved 11,905 completions in 2025, up 12% on the same period a year earlier. New housing revenue climbed 16%, pre-tax profit climbed 13% to £445.6m, and operating margins climbed by 20 basis points to 14.3%. 

The company credited the strong results to greater mortgage availability and real wage growth. It also pointed to the "beneficial changes to the planning environment that the government has introduced, which should support further outlet growth over time."

This year opened strongly. Persimmon's net private sales rate per outlet per week was 0.73 in the first nine weeks of 2026, up 9% compared with the same period last year. The private average selling price in the order book is up 6%.

The impact of the Iran conflict on customer sentiment "remains to be seen," though assuming the conflict is short, the company said it expects to deliver between 12,000 and 12,500 completions this year. 

"Within private sales, we have not assumed mortgage rate reductions or the introduction of any government demand stimulus, with the most important short-term factor being any changes to customer sentiment in response to increased uncertainty,” the company added. 

In other news...

Berkeley confronts the crisis in London homebuilding (FT), Iran Shock Upends Real Estate’s Long-Anticipated Recovery (Bloomberg), and finally, Easiest time to rent a home in six years as competition eases (Times).