Mortgage Rates Soar as Global Conflict and 'Trumpflation' Hit UK Borrowers
Homeowners and buyers in the UK are facing a sharp increase in mortgage costs, with the average two-year fixed interest rate jumping from 4.83% at the start of March to 5.28% now, according to data from Moneyfacts. This surge has added nearly £800 to the annual mortgage bill for a typical borrower, marking the most significant upheaval since the aftermath of Liz Truss's mini-budget in 2022.
Economic Fallout from War Drives Rate Hikes
The escalation in mortgage rates is largely attributed to the economic fallout from the war in the Middle East, which has triggered what experts term 'Trumpflation'—a wave of inflationary pressures stemming from US- and Israel-led actions in Iran. Adam French, head of consumer finance at Moneyfacts, warned that this development is unwelcome news for anyone seeking a fixed-rate deal, as nearly 700 mortgage products have been withdrawn by lenders in just two weeks.
For a borrower with a £250,000 mortgage over 25 years, the rate increase translates to paying £788 more per year on a two-year fixed deal or £651 more on a five-year fix compared to a fortnight ago. The average five-year fixed rate has also risen, from 4.95% to 5.32%, reaching its highest level since February 2025.
Impact on Borrowers and the Housing Market
This upward march in home loan costs deals a blow to prospective buyers and those looking to remortgage, with approximately 1.8 million fixed-rate deals set to expire in 2026. Most of these borrowers will need to secure new mortgages amid a landscape of reduced options and higher prices.
The global shock waves from the conflict have altered economic expectations, shifting focus from anticipated interest rate cuts to concerns over rising oil and gas prices stoking inflation. This uncertainty has pushed up money market swap rates, which lenders use to set new fixed mortgage rates, leading to a dramatic reduction in affordable deals.
Market Volatility and Future Outlook
According to Moneyfacts, there are now only nine fixed-rate deals available with rates below 4%, a sharp decline from 490 at the start of last week. French emphasized that choice continues to diminish as lenders respond to rapidly rising funding costs, and borrowers should brace for further volatility in the coming weeks.
Financial experts now expect the Bank of England to hold interest rates at 3.75% at its upcoming policy meeting, with cuts off the table—a reversal from earlier expectations of a rate reduction. Some commentators suggest that if inflation rises, interest rates could increase before the end of the year, adding to the financial strain on households.
This situation underscores the broader challenges in the UK property market, where high levels of debt on essential bills are becoming the 'new normal,' as warned by campaigners. The interplay of global conflict, inflationary pressures, and market dynamics is creating a precarious environment for mortgage holders and the economy at large.
