The UK mortgage market has been thrown back into a state of turbulence not seen since the aftermath of the 2022 mini‑Budget, as lenders scramble to reprice deals in response to global instability triggered by the U.S. Israel war with Iran.
Average rates on two‑year fixed mortgages have now climbed above 5%, reaching their highest level since last August, according to data from Moneyfacts. Five‑year fixes have also risen, marking their most expensive point since mid‑2024.
Little or no warning
The sudden shift has caught borrowers off guard. Nearly 500 mortgage products have been withdrawn in just 48 hours, the steepest contraction in available deals since the Truss–Kwarteng fiscal shock.
Lenders are reacting to sharp movements in gilt yields, which have become increasingly volatile as markets reassess the likelihood of Bank of England rate cuts this year.
Before the conflict erupted, investors had broadly expected the Bank to begin easing borrowing costs. That optimism evaporated as oil prices surged, raising the prospect of renewed inflationary pressure.
With Brent crude still more than 20% higher than before the war and reaching over 40% increase at one stage, expectations of cheaper mortgages have been replaced by fears of a prolonged period of elevated rates.
Timing
For homeowners approaching the end of a fixed deal, the timing is particularly painful. The average two‑year fix has jumped from 4.84% to 5.01% in less than four days, while five‑year rates have risen from 4.96% to 5.09%.
First‑time buyers, already squeezed by high prices and stagnant supply, face a shrinking pool of products and rising monthly costs.
The wider cost‑of‑living picture is also darkening. Petrol and diesel prices continue to climb as Middle East supply disruptions ripple through global energy markets.
With inflation risks resurfacing, the path for mortgage rates now hinges on how the conflict evolves — and whether markets can regain their footing.
Fuel up, energy costs up and mortgage rates up – all in just a weekend – that didn’t take long.
