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Recent data reveals that the UK mortgage market is experiencing significant disruption, comparable in severity only to the period following the 2022 mini-Budget. Currently, the average interest rate for two-year fixed mortgage deals has climbed above 5%, marking the highest level since August of last year. Similarly, five-year fixed mortgage rates have reached their peak since June, according to information from Moneyfacts.
The availability of mortgage products has also been affected drastically. Over the past two days, close to 500 mortgage options have been withdrawn from the marketplace, the largest reduction since the mini-Budget turmoil during Liz Truss’s tenure as prime minister. This tightening impacts a broad range of borrowers, including those renewing existing fixed mortgages and new entrants like first-time buyers. Previously, the market anticipated a potential cut in UK interest rates later this year, but the onset of the US-Israel conflict with Iran and subsequent spike in oil prices have diminished those expectations by raising inflation concerns.
Government bond yields, which influence borrowing costs, have shown volatility recently. Adam French, head of consumer finance at Moneyfacts, noted that the recent turbulence rivals the upheaval following the September 2022 mini-Budget. He emphasized the unfortunate shift from hopes of declining mortgage rates to rising charges and highlighted the uncertainty ahead, largely dependent on global market developments and inflation trends amid the ongoing Middle East conflict. Lenders are adjusting their mortgage rates in response to the changing outlook on the Bank of England’s policy rate, which directly determines borrowing costs.
Mortgage interest rates on fixed deals remain constant for the duration of the term, typically two or five years, before a new rate is chosen. Recent figures show the average two-year fixed rate increased from 4.84% to 5.01% within a few days. Likewise, the average rate on five-year fixed mortgages rose from 4.96% to 5.09%. The rapid removal of 472 mortgage products, representing approximately 6.5% of the market, has left 7,164 deals available. Brokers anticipate further increases in rates soon but suggest borrowers might take advantage of current offers. Aaron Strutt of Trinity Financial mentioned that many lenders permit customers to switch rates up to four months before their terms end, with some institutions still offering fixed rates below 4%.
In addition to mortgage market challenges, fuel prices in the UK have seen upward pressure due to volatility in oil supply linked to Middle East unrest. According to Simon Williams from the RAC, unleaded petrol prices rose by 1p to 139p per litre, while diesel climbed 2p to 155.1p per litre. Diesel prices have surged nearly 13p, or 9%, since the conflict’s outbreak on February 28, marking the highest cost since May 2024. Williams further explained that if oil prices stabilize near $90 per barrel and the pound maintains its exchange rate against the US dollar, UK drivers could face average petrol prices close to 140p per litre and diesel rates approaching 167p. Brent crude, the global oil price benchmark, currently trades at $89.44 per barrel—down from a peak near $120 but still exceeding pre-conflict levels by more than 20%
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