The UK mortgage market is experiencing its most violent shift in nearly four years as the conflict in Iran sends shockwaves through the global economy. In just two weeks, lenders have pulled nearly 700 deals, leaving borrowers with significantly higher costs and fewer options. Experts say the average home loan is now £800 more expensive per year than it was before the outbreak of hostilities.
Moneyfacts data shows that the average five-year fix has jumped to 5.32%, while two-year deals have climbed to 5.28%. This “upward march” in costs is being attributed to “Trumpflation”—a term used to describe the inflationary effects of the U.S.-led action in the Middle East. As oil prices rise, the cost of borrowing for banks increases, and those costs are being passed directly to the consumer.
The dream of securing a mortgage below 4% has become a reality for only a tiny fraction of the market. The count of such deals has collapsed from 490 to just nine in the space of a week. For those looking to move or remortgage, this represents a significant “affordability gap” that could slow the entire UK property market as we head into the spring.
The Bank of England, which was widely expected to cut interest rates this Thursday, is now likely to stay its hand. With inflation threats mounting, the central bank’s priority has shifted from supporting growth to containing price surges. This change in direction is particularly painful for the 1.8 million homeowners whose cheap fixed-rate deals expire this year.
“Borrowers need to brace for further volatility,” warned Adam French of Moneyfacts. He noted that the market is in a state of high alert as the global economy braces for the full impact of the conflict. The current “repricing” phase suggests that lenders believe higher rates are here to stay for the foreseeable future.