UK mortgage rates are expected to increase further this week, despite a temporary easing in global tensions after Donald Trump delayed planned US strikes on Iranian energy sites.
Homeowners are already facing fewer mortgage deals and rising borrowing costs, as financial markets continue to price in higher interest rates driven by concerns over inflation linked to the Middle East conflict.
Market data earlier this week suggested investors expect the Bank of England to raise interest rates multiple times this year to tackle rising prices. While expectations eased slightly after Trump postponed potential military action, analysts say the UK remains vulnerable to inflation pressures.
As a result, mortgage lenders have continued to increase rates, with the average two-year fixed mortgage rising to 5.43% — up from 5.35% just days earlier and significantly higher than 4.83% at the start of March.
The number of available mortgage products has also fallen sharply. There are now just over 6,100 deals on the market, down from more than 6,600 last week, as lenders withdraw and reprice products in response to volatile market conditions.
Moneyfacts warned that expectations of rising interest rates are having a “catastrophic impact” on the mortgage market, with borrowers facing higher costs and fewer options.
Nicholas Mendes, a mortgage adviser at John Charcol, said the pressure on rates is likely to continue.
“Mortgage pricing does not wait for the Bank of England to come to [make up its mind],” he said.
“If markets keep pricing in higher rates from here, lenders are likely to continue repricing in advance.”
Last week, the Bank of England held its base rate steady but signalled that increases could be necessary if inflation rises above current forecasts.
However, some economists have questioned whether multiple rate hikes are likely this year. Analysts at Goldman Sachs suggested the central bank may keep rates unchanged for longer, while others described market expectations as “overdone”.
Despite the temporary pause in US military action, global investors remain cautious. Ongoing tensions in the Middle East — including continued strikes involving the US, Israel and Iran — have driven demand for safe-haven assets and contributed to volatility in financial markets.
Chris Beauchamp, chief analyst at IG, warned that prolonged conflict could have serious economic consequences.
“Each day that the war goes does more damage to the global economy and drives inflation higher, with recession chances rising by the hour,” he said.
With inflation fears persisting and markets unsettled, UK homeowners are likely to face continued pressure as mortgage rates climb and borrowing becomes more expensive in the months ahead.