The cost of a typical mortgage has increased by nearly £1,000 a year in the three weeks since the war in the Middle East began.
And mortgages look likely to keep getting more expensive over the coming days and weeks thanks to fears of ‘Trumpflation’ driving interest rates higher.
The average two-year fixed mortgage rate has risen from 4.83 per cent at the start of the conflict to 5.35 per cent today, the highest since March 2025, according to Moneyfacts, adding around an extra £900 per year to the cost of borrowing £250,000 over 25 years.
Meanwhile, average five-year fixed mortgage rates have risen from 4.95 per cent at the start of the conflict to 5.39 per cent today. It’s the highest since July 2024 and represents and increase of around £775.
Only as recently as January, the lowest fixed rate on the market was below 3.5 per cent, now they’re all above 4 per cent.
Yesterday, a major escalation in the Iran war saw a retaliatory attack on a gas facility in Qatar, which sent overnight gas prices to their highest level in three years.
Change of trajectory: Markets are now pricing in interest rate hikes later this year, which would have a knock-on effect on mortgage rates
The price of Brent Crude oil has increased more than 50 per cent over the last month.
Markets now see the spike in energy prices feeding through into higher inflation later this year. This has transformed the outlook for interest rates and mortgage rates going forward.
Prior to the war in the Middle East, markets were pricing in one or two more interest rate cuts by the Bank of England this year. Now, they are pricing in two or three interest rate hikes in 2026.
Yesterday, the Bank of England held interest rates – but this won’t stop fixed rate mortgages from rising further over the coming days.
Experts at Moneyfacts are suggesting that they could continue to rise in the longer term, too.
Its analysis of analysis of UK monetary policy and historic rates data between 1990 and 2025 found that average mortgage rates stabilise at around 1.5 percentage points above base rate, which is currently 3.75 per cent.
If the conflict continues to disrupt the global economy, and the base rate hits 4.25 per cent as markets are predicting, it may mean average rates on new mortgages stabilise at around 5.75 per cent.
This could add an extra £1,000 to £1,500 per year to the cost of borrowing £250,000 over 25 years compared to what people were paying at the start of the conflict.
‘Swap rates, which underpin mortgage pricing, have risen sharply following the decision to hold the base rate at 3.75 per cent, with markets interpreting commentary from the Bank of England as leaving the door open to rate rises,’ said Adam French, head of consumer finance at Moneyfacts.
‘With two-year and five-year swaps now sitting at their highest level in more than a year, lenders are once again facing higher funding costs, and this will feed through into mortgage pricing.
‘While a quicker resolution to the conflict in the Middle East could ease pressure on rates, the reality is that a more volatile world is a more expensive world.
‘Even though the most competitive deals will remain below average, anyone looking to buy or remortgage this year needs to prepare for higher costs than previously expected.’
Fixed rate mortgage pricing is largely based on Sonia swap rates – the inter-bank lending rate, which is based on future interest rate expectations.
When Sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.
Similar to gilt yields, Sonia swap rates have spiked upwards since the conflict began. As of today, two-year swaps are 4.21 per cent, up from 3.36 per cent on 27 February.
Meanwhile, five-year swaps are at 4.13 per cent, up from 3.41 per cent on 27 February.
It means two- and five-year swaps are now close to 1 percentage point higher than at the start of the conflict and at their highest level in more than a year.
Mortgage rates are therefore likely to continue to rise in order to reflect this change.
