Mortgage costs have now risen £900 a year since Middle East conflict
The cost of a typical mortgage has risen by around £1,000 a year in the three weeks since the start of the war in the Middle East.
And mortgages look set to continue to get more expensive in the coming days and weeks amid fears of ‘Trumpflation’ interest rates higher.
According to Moneyfacts, the average two-year fixed mortgage rate has risen from 4.83 percent at the beginning of the conflict to 5.35 percent today; This is the highest level since March 2025 and adds around £900 a year to borrowing costs of £250,000 over 25 years.
Meanwhile, average five-year fixed mortgage rates have risen from 4.95 percent at the beginning of the conflict to 5.39 percent today. This is the highest level since July 2024 and represents an increase of around £775.
As recently as January the lowest fixed rate on the market was below 3.5 percent, now they are all above 4 percent.
Yesterday, amid a major escalation in the Iran war, a retaliatory attack was launched on a gas facility in Qatar, sending gas prices to a three-year high overnight.
Trajectory change: Markets are now pricing in rate hikes later this year, which could have a knock-on effect on mortgage rates.
The price of Brent crude oil rose more than 50 percent last month.
Markets now see that the increase in energy prices is reflected in the rise inflation later this year. This changed the forward-looking outlook for interest rates and mortgage rates.
Before the war in the Middle East, markets were pricing in one or two more interest rate cuts from the Bank of England this year. They are now pricing in two or three interest rate hikes in 2026.
Yesterday the Bank of England kept interest rates steady; However, this will not prevent fixed-rate mortgages from increasing further in the coming days.
Experts at Moneyfacts suggest they may continue to rise in the long run.
Analysis of UK monetary policy and historical rates data between 1990 and 2025 found that average mortgage interest rates have stabilized at around 1.5 percentage points above the base rate, which is currently 3.75 per cent.
If conflict continues to disrupt the global economy and the base interest rate reaches 4.25 percent as markets predict, this could mean average interest rates on new mortgages would stabilize around 5.75 percent.
This could add an extra £1,000 to £1,500 a year to the cost of borrowing £250,000 over 25 years, compared to what people paid at the start of the conflict.
“Swap rates, which form the basis of mortgage pricing, rose sharply following the decision to keep the base rate at 3.75 per cent; markets are interpreting the Bank of England’s comment as leaving the door open to rate hikes,” said Adam French, head of consumer finance at Moneyfacts.
‘With two-year and five-year swaps at their highest level in more than a year, lenders will once again face higher financing costs, which will be reflected in mortgage pricing.
‘A faster resolution of the conflict in the Middle East could ease pressure on interest rates, but the reality is that a more unstable world is a more expensive world.
‘While the most competitive deals remain below average, anyone looking to buy or remortgage this year should be prepared for higher costs than previously expected.’
Fixed-rate mortgage pricing is largely based on Sonia swap rates, which is the interbank lending rate based on future interest rate expectations.
When Sonia trades get high enough, stable results usually occur. mortgage rates When going up and vice versa when falling.
Similar to gilt yields, Sonia exchange rates have also been on the rise since the start of the conflict. As of today, two-year swaps have increased to 4.21 percent from 3.36 percent on February 27.
Meanwhile, five-year swaps increased from 3.41 percent on February 27 to 4.13 percent.
This means two- and five-year swaps are now 1 percentage point higher than at the start of the conflict, reaching their highest level in more than a year.
Therefore, mortgage rates are likely to continue rising to reflect this change.
