Hundreds of mortgage deals vanish from the market as Britain’s economy flatlines
Hopes of a steady decline in mortgage interest rates have “collapsed” this week as more than 530 homeowner mortgage deals have been taken off the market since Monday. Financial information site Moneyfacts reports that this represents about 7.5 percent of current deals.
Rapid withdrawals mark the fastest pace since the 2022 mini-budget; Some average mortgage interest rates have already surpassed the 5 percent threshold amid volatile financial markets.
Moneyfacts reported Friday that the average two-year homeowner mortgage rate rose to 5.10 percent, its highest point since July 2025, a significant jump from 4.87 percent on Monday. Similarly, the average five-year homeowner mortgage rate rose to 5.19 percent from 4.98 percent at the beginning of the week, reaching its highest level since April 2025.
Adam French, head of consumer finance at Moneyfacts, said even the cheapest interest rates were on the rise, adding: “This is unpleasant news for borrowers as hopes that mortgage interest rates will steadily fall have collapsed, giving way to a much more uncertain outlook.
“The target now depends largely on how global markets and inflation expectations evolve in response to the conflict in the Middle East.”
The news comes as the UK economy unexpectedly flattened out in January after an already weak start to the year ahead of the Iran conflict and concerns about rising inflation caused by soaring oil prices.
Official figures showed zero growth in gross domestic product (GDP) in January, despite expectations that production would increase by 0.2%.
Worse-than-forecast figures from the Office for National Statistics (ONS) have raised fears that rising fuel and energy prices caused by the US-Israeli war with Iran will hit the UK economy hard, which is already struggling to gain momentum.
Economists have warned that protracted conflict and a continued rise in oil prices (above US$100 for the first time in nearly four years) could send the economy into reverse by 2026.
The latest data follows weak growth of just 0.1% in the final three months of last year due to budget uncertainty and a weak performance in December; There was a growth of 0.1% in December.
Chancellor Rachel Reeves said the figures came amid an “uncertain world” as the Iran war threatens to increase inflation.
The Office for Budget Responsibility (OBR), the independent financial watchdog, warned earlier this week that a sustained rise in energy prices driven by conflict in the Middle East could mean UK inflation ends the year at close to 3%, a percentage point higher than expected.
Even before the Iran conflict began, it had cut its growth forecast for this year from 1.4% to 1.1% in its last spring statement.
Ms Reeves said: “Our economic plan is correct but I know there is more to be done.
“In an uncertain world, we are building a stronger, more secure economy by lowering the cost of living, cutting the national debt, and creating the growth conditions for every part of the country to do better.”
ONS figures showed housebuilding in particular had a tough start to the year, with private residential new jobs falling by 5.6% in January; this was the worst performance since March 2020, at the start of the Covid outbreak.
While the very important services sector did not show any growth in January, production across manufacturing increased by 0.1%, with the help of the recovery in automobile production following the Jaguar Land Rover cyber attack, while construction increased by 0.2%.
The ONS estimated that GDP grew by 0.2% in the three months to January.
Bank of England policymakers will stay away from cutting interest rates next Thursday despite the UK’s sluggish economic performance in recent months, experts said.
PwC chief economist Barret Kupelian said: “In calmer conditions, soft growth and a stable fiscal stance will strengthen the case for a rate cut.
“But central banks are not caught up in the fog of geopolitical uncertainty. Lower interest rates are available domestically, but geopolitics could still delay the decision.”
Lenders are already withdrawing from mortgage deals en masse in the expectation that interest rates will remain high for longer.
Some experts even predict that the Bank may have to raise interest rates due to the increase in inflation caused by the war.
