Conflict in the Middle East has delivered a sharp blow to UK mortgage holders, pushing average home loan rates above 5% and sending lenders into a frenzy of repricing and product withdrawals. In less than 48 hours, close to 500 mortgage deals disappeared from the market — a dramatic contraction that experts are comparing to the turmoil seen in the wake of the September 2022 mini-budget. The episode is a stark reminder of how quickly geopolitical events can translate into financial pain for everyday consumers.
The war, which has drawn in both the United States and Israel in military action against Iran, has rattled global energy markets and stoked fresh inflation fears. Higher oil and gas prices tend to feed through into broader price pressures, complicating the task of central banks that had been in the process of cutting interest rates. In the UK, those expectations for monetary easing have now been sharply revised downward, with knock-on consequences for the cost of borrowing.
HSBC, Nationwide, Halifax, and Barclays are among the leading lenders to have raised mortgage rates in response to climbing swap rates. HSBC went further, announcing a second round of increases to take effect from Thursday. Moneyfacts data showed the standard two-year fixed rate rising to 5.01% — its highest level since last summer — while the five-year rate reached 5.09%, undoing months of hard-won progress for UK borrowers.
The pain is felt most acutely by the roughly 1.8 million households whose fixed-rate mortgages are set to expire this year. Many of these borrowers had been banking on lower rates when it came time to refinance, and the sudden reversal significantly narrows their options. The Bank of England had been widely expected to cut its base rate at least twice in 2026, but those predictions are now being abandoned as inflation risks mount.
Markets are now pricing in a base rate hold at 3.75% when the central bank meets on March 19, with some analysts raising the spectre of a possible increase. The chance of a rate cut this year has dropped from 50% earlier this week to just 20% as of Wednesday. According to Moneyfacts’ Adam French, the ultimate trajectory of UK mortgage costs will be determined by how global markets respond as the Middle East conflict continues to unfold.