UK Mortgage Market Sees Sharp Rate Rise and Product Withdrawals
Average mortgage rates in the UK have surged past 5%, driven by lenders rapidly repricing loans in response to escalating turmoil from the Middle East conflict. In a significant market upheaval, nearly 500 mortgage products have been withdrawn over the past 48 hours, marking the most substantial disruption since the aftermath of the 2022 mini-budget under Liz Truss.
Lenders Scramble as Swap Rates Climb
Major high street banks, including HSBC, Nationwide, Halifax, and Barclays, have implemented rate increases. HSBC announced a second round of price hikes effective from Thursday, affecting a broad range of products. According to Adam French, head of consumer finance at Moneyfacts, "Recent days have been some of the most turbulent in the UK mortgage market since the September 2022 mini-budget." He noted that almost 500 residential mortgage deals were pulled as lenders reacted to swiftly rising swap rates.
However, French emphasized that this withdrawal scale is "nowhere near the shock seen in late September 2022 when 935 products, accounting for over a quarter of the market, disappeared in a single day."
Impact on Borrowers and Market Trends
The average two-year fixed-rate mortgage reached 5.01% on Wednesday, up from 4.84% before the US-Israeli war on Iran, returning to highs observed last summer. The typical five-year deal now stands at 5.09%. This upward trend poses a significant challenge for homebuyers and those seeking to remortgage, with approximately 1.8 million fixed-rate deals set to expire in 2026.
The shift in direction stems from global economic shocks caused by the Middle East war. Previously, economists had anticipated two interest rate cuts in 2026, following four reductions by the Bank of England last year. Now, concerns over higher oil and gas prices fueling inflation have increased uncertainty, pushing up money market swap rates that influence fixed mortgage pricing.
Future Outlook and Economic Implications
Financial experts now predict the base rate will remain at 3.75% at the Bank of England's meeting on March 19. The likelihood of a rate cut has plummeted from 80% before the conflict to just 20%, down from 50% on Tuesday. French commented, "How far they could go is now heavily dependent on how global markets and inflation expectations evolve as conflict in the Middle East unfolds."
This development reverses recent trends where households benefited from cheaper home loans, presenting unwelcome news for borrowers facing renewed rate rises. The ongoing crisis underscores the fragile state of the UK mortgage market amid international geopolitical tensions.
