‘The biggest shock to the UK mortgage market since the 2022 mini-budget’

The Iran conflict has triggered the sharpest shock to the UK mortgage market since the 2022 mini-budget, the financial information company Moneyfacts has said, with rates soaring in the space of just one month.

Mortgage deals have been rapidly repriced, with average two-year fixed rates jumping from 4.84% to 5.84% in a month, while five-year fixes are up to 5.75% from 4.96% – marking the sharpest rise since autumn 2022. At the same time, product choice has contracted with mortgage availability falling by a net 1,283 products (17% of the market) in a month, the steepest contraction by market share since the mini-budget disruption.

Customers at the end of older five-year deals are hardest hit, Moneyfacts said, with repayments rising by £417–£444 per month (£5,000+ annually).

Affordability has deteriorated quickly, with typical borrowers now facing £150 extra per month (+£1,777 annually) on a £250,000 loan compared to costs at the start of the conflict. Higher LTV borrowers are seeing increases of up to £167 per month.

The lowest rates have also seen a sharp increase, with the cheapest 60% LTV two-year fixed rate up from 3.51% to 4.60%, which Moneyfacts attributes to the most competitive deals being quickly repriced in response to rising funding costs.

Adam French, head of consumer finance at Moneyfacts, said: “The conflict in Iran quickly upended rate expectations and sent borrowing costs skyrocketing in the biggest shock to the UK mortgage market since the aftermath of the 2022 mini-budget.

“Average mortgage rates have risen at pace, with two-year fixes increasing by 100 basis points from 4.84% to 5.84% in just one month and five-year fixes up by nearly 80 basis points, from 4.96% to 5.75%. The cheapest deals available to borrowers have moved dramatically too, the lowest two-year fixed rate at 60% LTV has increased by over 100 basis points from 3.51% to 4.60%.

“While this falls short of the extreme jumps seen in the aftermath of the mini-budget, it is still a sharp and sudden shift that has materially worsened affordability in a very short space of time.

“For many borrowers, the cost could be significant. Someone taking out a typical two-year fix will find it costs £150 more per month on average compared to just a few weeks ago. However, the real payment shock will be felt by those coming off older five-year deals, where rates have more than doubled, pushing up repayments by many hundreds of pounds per month.

“The combination of rising rates, reduced choice and heightened volatility means borrowers and brokers are operating in a market where timing is critical and the window to secure competitive deals can be very short-lived. Unfortunately, anyone looking to buy or remortgage this year needs to prepare for substantially higher borrowing costs than expected before this conflict began.”

The Moneyfacts announcement comes amid warnings from industry commentators that positive housing market indicators mask an impending downturn triggered by the conflict in the Middle East.

HMRC’s latest property transaction volumes set “an ominous tone for the market, as dark clouds gather on the horizon,” according to Andrew Lloyd, managing director at property data firm Search Acumen.

“The conflict in the Middle East does not seem to be near resolution and the economic effects are already accelerating, despite not being completely captured in this data,” he said.

“Whilst January and February are not typically active times for completions, the decline in volume of residential transactions from the same period last year makes a typical Spring bounce look worlds away, as consumer confidence wanes.

“The US, as a market indicator of what we might expect to see in the coming weeks, shows increasing affordability pressures as mortgage rates there surge to 6.38%, causing overall house sale volumes to fall.

“If we see geopolitical tensions ease and inflation hold, we may see transactions rebound. But as we know, uncertainty is a market killer. What is more likely is that the market volatility we’ve witnessed in recent weeks will become more evident in datasets next month, as deals sit on their hands and buyers wait.”

Earlier this week, Chancellor Rachel Reeves convened the six largest banks and building societies to secure a commitment they will support customers coming to the end of fixed term mortgage deals, as rates rise following the global uncertainty caused by the conflict. “In uncertain times, people need clear reassurance and practical help,” the chancellor said.

“That’s why I’ve brought the biggest lenders together to step up support and make sure anyone who is worried can access the Mortgage Charter options quickly, without their credit score being affected.”

Table 1: Average mortgage rates

Table 2: Product availability