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Mortgage rates are climbing rapidly, with experts warning borrowers to brace for continued fluctuations in the near future. Despite a brief moment of calm following US President Donald Trump’s remarks about “constructive” discussions with Iran, the mortgage market remains turbulent and unpredictable. Brokers report that major lenders are either increasing their rates or withdrawing mortgage deals, leaving many potential homeowners uncertain about whether they are securing competitive terms, or pressured to decide quickly.
The impact is especially pronounced for first-time buyers, who rely heavily on low-deposit mortgage offers. More of these deals have been pulled from the market in recent days than at any other time since the 2022 mini-Budget upheaval. Rachel Springall from Moneyfacts highlighted the ongoing disruption, stating, “There appears to be no rest in sight for more upheaval to the mortgage market,” and advised borrowers to seek independent guidance to navigate the current volatility.
For those entering the market with only a 5% deposit, the average interest rate on two-year fixed mortgages has climbed above 6%, substantially higher than just weeks earlier. The higher rates translate to increased annual costs, with estimates showing an additional £1,200 per year on a typical £250,000 loan over a 25-year term. Since early March, over 200 low-deposit mortgage products have been withdrawn, including 52 in a single day on Saturday and another 30 on the following Tuesday. Fixed mortgage rates do not change over the fixed term, typically two or five years, but new borrowers are facing rising rates amid significant uncertainty.
Before the outbreak of conflict involving Iran and Israel, financial markets had expected interest rates in the UK to decrease during the year, easing pressure on mortgage pricing. Lenders had been offering lower rates as their funding costs fell. However, the geopolitical tensions have reversed this trend, pushing the average two-year fixed mortgage rate up to 5.51%, the highest since February of the previous year. Similarly, five-year fixed rates rose to 5.52%, marking their highest point since July 2024. Market volatility has led to more than 20% of mortgage products being pulled by lenders, and brokers like Aaron Strutt of Trinity Financial emphasize the rapid pace of rate changes, making it challenging for borrowers to identify attractive fixed-rate deals. David Hollingworth from broker L&C warns that this unsettling period will continue until the conflict in the Middle East shows signs of resolution.
There is a notable divergence between market expectations and economists’ predictions regarding future interest rate movements by the Bank of England. While markets anticipate several base rate hikes over the coming months, many economists remain skeptical. Andrew Bailey, governor of the Bank of England, recently commented that policymakers will carefully evaluate unfolding events before making decisions; the Monetary Policy Committee has kept borrowing costs steady at 3.75%. This split between market sentiment and expert analysis reflects the broader uncertainty surrounding global geopolitical and economic conditions.
On a somewhat brighter note, retirees approaching or at retirement currently face more favorable conditions when purchasing annuities, which provide a guaranteed income for life in exchange for a pension pot. Although annuities have lost some popularity due to the rise of drawdown pensions—allowing retirees flexibility in their withdrawals—their rates are closely linked to bond yields, which have climbed since the conflict began. William Burrows, a financial adviser with the Annuity Project, points out that annuity rates tend to lag behind bond movements but are expected to continue rising, benefiting those converting their pensions into secure retirement income
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