For the first time since last summer, the average UK mortgage rate has climbed back above 5%, driven by geopolitical tension in the Middle East and its ripple effects through global financial markets. The conflict involving US and Israeli forces and Iran has upended expectations for interest rate cuts in 2026, pushing lenders to withdraw hundreds of products and raise their pricing across the board. Borrowers who had enjoyed falling mortgage costs in recent months are now facing the prospect of a sustained period of higher repayment burdens.
The mechanism driving the rate rises is the swap market, where financial institutions trade interest rate expectations. As fears about oil prices and inflation have intensified, swap rates have climbed sharply, forcing lenders to reprice their fixed-rate products to maintain profitability. Within 48 hours, nearly 500 mortgage products were pulled from sale — a scale of disruption that Moneyfacts described as unprecedented since the September 2022 mini-budget.
HSBC led the repricing charge with multiple rounds of increases, accompanied by similar moves from Nationwide, Halifax, and Barclays. The two-year fixed average hit 5.01%, up from 4.84% before the start of the conflict, while the five-year average climbed to 5.09%. Adam French of Moneyfacts noted that while the withdrawal numbers are serious, they fall short of the 935 products that vanished in a single day during the 2022 crisis.
The timing is particularly concerning for British households. Approximately 1.8 million fixed-rate mortgage holders are expected to see their deals end during 2026, and the sudden jump in rates makes their refinancing prospects considerably more expensive. Economists had previously pencilled in two Bank of England rate cuts for 2026 on the back of the four cuts delivered in 2025, but those assumptions are now being scrapped.
The central bank’s next policy meeting on March 19 is now widely expected to deliver no change to the 3.75% base rate, having previously been seen as likely to produce a cut by an 80% probability margin. The odds of any 2026 reduction have slumped to just 20%, down from 50% before the conflict erupted. French said the future path of mortgage rates would be determined by the progression of the Middle East conflict and its effect on global inflation expectations.