UK homeowners taking out new mortgages could face paying nearly £800 more per year on average as the economic fallout from the Iran war pushes up borrowing costs, according to new data from Moneyfacts.
Lenders have withdrawn nearly 700 mortgage deals in recent days as financial markets react to rising global uncertainty. Analysts say the upheaval in the mortgage market is the most significant since the aftermath of Liz Truss’s controversial mini-budget in 2022.
Experts warn that the surge in costs is being driven by what some are calling “Trumpflation”, as geopolitical tensions linked to US and Israeli action against Iran push up oil prices and inflation expectations.
Adam French, head of consumer finance at Moneyfacts, said the impact on borrowers has been swift.
“War in the Middle East has added almost £800 to a typical annual mortgage bill in just two weeks, which will be unwelcome news for anyone currently seeking a fixed-rate deal,” he said.
According to Moneyfacts data, the average two-year fixed mortgage rate has risen from 4.83% at the start of March to 5.28%, its highest level since April 2025. Meanwhile, the average five-year fixed rate has increased from 4.95% to 5.32%, the highest level since February 2025.
For a homeowner with a £250,000 mortgage over 25 years, that increase could mean paying £788 more each year on a two-year fixed deal or £651 more annually on a five-year fixed mortgage compared with rates available just two weeks ago.
The rise in borrowing costs represents a major setback for prospective homebuyers and homeowners planning to remortgage.
Around 1.8 million fixed-rate mortgage deals are due to expire in 2026, meaning a large number of borrowers will soon need to secure new loans at potentially higher interest rates.
Before the escalation of tensions in the Middle East, economists had widely expected the Bank of England to cut interest rates twice in 2026, following four reductions announced last year.
However, concerns that higher oil and gas prices could fuel inflation have shifted market expectations. As a result, swap rates — which lenders use to price new fixed-rate mortgages — have climbed sharply.
Financial analysts now expect the Bank of England to hold its base rate at 3.75% at Thursday’s policy meeting, with the likelihood of immediate rate cuts fading.
Some economists have even warned that interest rates could rise again later this year if inflation continues to accelerate.
The tightening mortgage market is also reducing consumer choice. According to Moneyfacts, only nine fixed-rate mortgage deals with rates below 4% are currently available, down sharply from 490 deals at the start of last week.
“Choice continues to fall as lenders pull deals and reprice in response to rapidly rising funding costs,” French said.
He added that borrowers should prepare for further turbulence in the housing market.
“Borrowers may need to brace for further volatility in the weeks ahead as the global economy braces for a ‘Trumpflation’ wave flowing from the US- and Israel-led action in Iran.”