The UK mortgage market has entered its most turbulent phase since the 2022 mini-budget crisis, with hundreds of deals being pulled and average rates breaching the 5% mark amid global financial anxiety triggered by the Middle East war. Lenders are moving swiftly to adjust their pricing in response to surging swap rates — the money market instruments that underpin fixed-rate mortgage pricing. For ordinary borrowers, the shift represents a sudden and unwelcome reversal after months of gradual improvement.
The conflict, involving US and Israeli military action against Iran, has sent shockwaves through financial markets worldwide, pushing energy prices higher and reigniting fears about inflation. In the UK, those fears have translated directly into higher borrowing costs, as lenders scramble to protect their margins against an unpredictable economic backdrop. The move by major institutions like HSBC to implement multiple rounds of rate increases within a single week underscores the severity of the market disruption.
Moneyfacts data confirms that the average two-year fixed mortgage rate has now hit 5.01%, compared with 4.84% on the day before the conflict began. The five-year equivalent now stands at 5.09%. Adam French, head of consumer finance at Moneyfacts, described the past 48 hours as among the most turbulent the UK mortgage sector has experienced since late 2022, though he noted the current product withdrawals — around 500 — fall short of the 935 pulled in a single day during the mini-budget fallout.
This development poses serious challenges for the estimated 1.8 million UK households whose fixed-rate deals are due to expire during 2026. Those borrowers were already navigating a complex refinancing landscape; the sudden rate spike makes their situation significantly harder. Before the outbreak of conflict, market forecasters had anticipated two interest rate cuts from the Bank of England this year, which would have provided some relief to borrowers seeking new deals.
That outlook has been upended almost overnight. The likelihood of a rate cut at the Bank of England’s March 19 meeting has collapsed from 80% to near zero, and the probability of any reduction occurring in 2026 now stands at just 20%. French warned that the direction of mortgage rates from here hinges almost entirely on how the Middle East situation evolves and whether inflation expectations continue to rise.