War in the Middle East has pushed UK mortgage rates to their highest point since last summer, with lenders repricing rapidly and withdrawing products at a pace reminiscent of the turbulence that followed the 2022 mini-budget. The two-year average fixed rate hit 5.01% on Wednesday, having been 4.84% just before the outbreak of conflict. The reversal is a significant blow for UK borrowers who had been benefiting from a steady softening of home loan costs over recent months.
The primary mechanism driving the increase is the swap rate market, which reflects investor expectations about future interest rates and inflation. As the Middle East conflict — involving US and Israeli forces and Iran — has raised the prospect of higher oil and gas prices, inflation expectations have climbed and swap rates have followed. Lenders, unable to absorb those increases in their margins, have responded by pulling existing deals and releasing new, more expensive ones.
Banks including HSBC, Barclays, Nationwide, and Halifax have all announced rate increases over the past two days. HSBC is applying a second round of hikes from Thursday, covering a wide range of its mortgage products. According to Moneyfacts, the total number of products withdrawn stands at close to 500 — a large number, though Adam French of the company was careful to note it falls well short of the 935 pulled in a single day at the height of the 2022 mini-budget upheaval.
Those most directly affected are the approximately 1.8 million UK households whose fixed mortgage deals are ending in 2026. These borrowers face having to take out new mortgages in a market that has just reversed course, potentially at costs significantly above what they might have secured just weeks ago. The Bank of England had been expected to ease rates twice more in 2026 after cutting four times last year, but that outlook has dramatically changed.
The bank’s March 19 policy meeting, previously seen as an 80% probability for a rate cut, is now expected to produce no change to the 3.75% base rate. The probability of any rate cut in 2026 has declined to 20%, from 50% before the conflict escalated. Adam French noted that the extent of further mortgage rate rises hinges on how the global market and inflation picture develops as the conflict progresses.