Mortgage Deals Withdrawn as Middle East Conflict Fuels Rate Rise Fears
Hundreds of mortgage deals have been pulled from the market in the past week, with rates continuing to soar as conflict in the Middle East significantly impacts the UK economy. Some City traders have forecast that interest rates could be raised three times in 2026, following the Bank of England's recent decision to hold its rate at 3.75 per cent.
Unanimous Decision by Monetary Policy Committee
The Bank's Monetary Policy Committee (MPC) voted unanimously to hold the base rate on Thursday, citing concerns that the war between the US and Iran will push up inflation by raising energy costs. This move has scuppered earlier hopes for cuts to the base rate, which experts had anticipated this month after a drop in the headline inflation rate from December to January.
More than 500 mortgage deals have been withdrawn from the market over the past week, marking the highest number since the aftermath of the 'mini-Budget' presented by former prime minister Liz Truss. Meanwhile, the average rate on two-year fixed deals has risen above 5 per cent for the first time since August, with current analysis showing two-year fixed rate mortgages averaging 5.28 per cent and typical five-year fixed rates at 5.32 per cent, up from 4.84 per cent and 4.96 per cent at the beginning of March.
Impact of Rising Swap Rates
Swap rates, which are used by lenders to price mortgages, have also been increasing amid the conflict. Rachel Springall, a finance expert at Moneyfacts, commented: "Borrowers looking for the lowest fixed rates will be disappointed to see the demise of sub-4% mortgages, but they are not sustainable with swap rates increasing. Lenders look at margins very carefully, so it would be unwise to price their deals too low if expectations are for interest rates to rise, even over the short-term."
She added: "In an unprecedented turn of events, the unrest in the Middle East has led to rising swap rates, which has inflated mortgage rates and caused deals to be pulled from sale, some temporarily. If such uncertainty is prolonged, and indeed if inflation spikes, we could even see an increase to the base rate before the year is over."
Major Lenders Withdraw Sub-4% Deals
Major lenders like Nationwide, Barclays, and HSBC all pulled their sub-4 per cent mortgage deals earlier this week, as these rates all but disappear from the market. The situation poses a significant blow to homeowners looking to renew their fixed-term mortgages or prospective homeowners searching for a deal.
It is now expected that inflation will rise again as disruption to the global oil trade causes the cost of energy and fuel to spike, further compounding economic pressures. This development underscores the fragile interplay between international conflicts and domestic financial stability, with the UK housing market facing renewed challenges amid global uncertainty.
