The Middle East war has delivered a severe jolt to the UK mortgage market, triggering a wave of product withdrawals and rate increases that analysts say represents the most disruptive episode for home loan borrowers since the 2022 mini-budget crisis. Average rates have crossed the 5% mark for the first time in several months, as lenders react to the inflationary implications of military conflict involving the US, Israel, and Iran. For millions of British homeowners, the development is an unwelcome and unexpected setback.
Swap rates — a key indicator that lenders use to price fixed-rate mortgages — have risen sharply in response to expectations that conflict-driven oil and energy price increases will fuel inflation and delay interest rate cuts. Major lenders including HSBC, Nationwide, Halifax, and Barclays have all moved to raise their mortgage rates, with HSBC enacting a second round of price increases to take effect Thursday. The changes affect a wide range of products, amplifying the impact on prospective buyers and those looking to remortgage.
Moneyfacts data shows the two-year fixed mortgage average reached 5.01% on Wednesday, rising from 4.84% in the days before the conflict began — a return to rates not seen since last summer. Five-year fixed rates have similarly climbed to 5.09%. Close to 500 mortgage products have been withdrawn in total, a significant figure though still below the 935 that disappeared during the worst day of the 2022 mini-budget chaos, according to Moneyfacts’ Adam French.
The human impact of these changes is most acutely felt by those approaching the end of their fixed-rate terms. Around 1.8 million such deals are due to expire in 2026, and borrowers in that position will now face the prospect of refinancing into a considerably less favourable market than they had anticipated. Before the outbreak of conflict, market expectations had pointed to two Bank of England rate cuts in 2026, building on the four already delivered last year.
Those expectations have crumbled. Markets are now pricing in no rate movement at the March 19 Bank of England meeting, having previously given an 80% probability to a cut. The probability of a cut at any stage in 2026 has dropped to just 20%. French cautioned that the trajectory of mortgage costs from this point would be shaped by the development of the Middle East conflict and its effect on global markets and inflation.