Mortgage Market Contracts Sharply as Geopolitical Tensions Bite
Prospective homeowners and those seeking to remortgage are confronting a dramatically reduced selection of mortgage products, with new analysis revealing that nearly one-fifth of available deals have vanished from the market within a fortnight. Financial information service Moneyfacts reported that as of Monday morning, the residential mortgage market had contracted by 19.5 per cent, with 1,492 fewer products available compared to 9 March.
Rapid Withdrawals and Rising Costs
The pace of withdrawal has been particularly striking, with 744 mortgage deals disappearing in just the four days since last Thursday. This market turbulence follows the Bank of England's decision to maintain its base rate at 3.75 per cent, coupled with revised inflation forecasts that have prompted lenders to reassess their offerings.
Lenders are scrambling to adjust their mortgage rates upward and withdraw certain products as expectations around inflation shift dramatically. The ongoing conflict in the Middle East has introduced significant pressure on prices, creating uncertainty in financial markets that is directly impacting mortgage availability and pricing.
Inflation Expectations Reverse Course
Swap rates, which lenders use to price mortgages, have been climbing steadily in recent weeks. Meanwhile, expectations that the Bank of England would cut the base rate this year have completely reversed. Some financial experts now suggest that rate increases could be implemented instead, responding to sharper rises in inflation than previously anticipated.
The Bank of England's Monetary Policy Committee now projects that Consumer Prices Index (CPI) inflation will reach approximately 3 per cent in the second quarter of 2026, a substantial increase from the 2.1 per cent forecast in February. There is potential for inflation to rise further to 3.5 per cent in the third quarter.
Average Mortgage Rates Climb Significantly
Moneyfacts data reveals that the average two-year fixed-rate mortgage has risen from 4.83 per cent at the beginning of March to 5.43 per cent as of Monday morning. Similarly, the average five-year fixed-rate deal available on the market has increased from 4.95 per cent to 5.45 per cent over the same period.
Adam French, head of consumer finance at Moneyfacts, explained: "Rates continue to climb as lenders scramble to keep pace with rising funding costs. The average two-year fixed-rate has reached its highest level since February 2025, while the average five-year fix is now at its highest since July 2024. Even the very cheapest deals have shifted significantly."
Geopolitical Factors Driving Market Volatility
French directly linked the market contraction to international developments: "The combination of rising rates and falling choice is a direct response to the conflict in the Middle East which has dramatically shifted expectations around inflation and interest rates. Many deals are likely to return to the market in the coming days and weeks but repriced at higher rates."
He added: "While a quicker resolution to the conflict could ease some of the pressure on rates, the reality is that a more volatile world is a more expensive world. Even though the most competitive deals will remain below average, anyone looking to buy or remortgage this year needs to prepare for higher costs than previously expected."
Comparison with Previous Market Shocks
Despite the significant contraction in mortgage availability, the current decline has not been as severe as that experienced in the aftermath of the 2022 mini-budget. The largest single-day withdrawal recorded by Moneyfacts occurred on 27 September 2022, when 935 products were removed from the market, representing just over 25 per cent of available deals at that time.
Nicholas Mendes, mortgage technical manager at John Charcol, noted: "There are understandable comparisons with the volatility seen after the Liz Truss mini-budget, because the pattern of rapid withdrawals and repricing feels familiar. But the cause is different. In 2022, the shock was driven by domestic fiscal credibility."
Mendes continued: "This time, the pressure is coming from a sharp shift in rate expectations, higher swap pricing, and concern that policy may need to stay tighter for longer. That does not automatically mean a return to those peak mortgage rates, but it does raise the risk of further upward moves in the near-term."
Practical Advice for Borrowers
For those navigating the current market conditions, Mendes offered practical guidance: "Speaking to a broker early could potentially help borrowers. For those coming up to a remortgage, in most cases, a new rate can be secured three to six months before an existing deal ends. If rates improve before completion, there is often scope to switch to something lower, meaning you save a significant amount over the term of the mortgage."
The mortgage market's rapid transformation underscores how international geopolitical events can have immediate and tangible consequences for domestic financial products and consumer costs. As lenders continue to adjust to evolving economic conditions, prospective borrowers face a landscape of reduced choice and increased expense.
