Mortgage deals collapse as rates surge on inflation fears

Nearly 1,500 mortgage products have been withdrawn in recent weeks as the crisis in the Middle East contributes to market turmoil.

Homeowners are feeling the pressure as mortgage options dwindle and borrowing costs rise, indicating that Britain’s housing market is entering a new phase of difficulty.

According to analysis from Moneyfacts, the number of available residential mortgage deals has decreased by nearly 20% in just two weeks, with 1,492 products pulled since March 9—a decline of 19.5%.

The pace of this change has accelerated sharply, with 744 deals disappearing since last Thursday alone.

This upheaval follows the Bank of England’s decision to maintain interest rates at 3.75% and its warning that inflation is expected to be higher than previously anticipated.

In response, lenders have quickly adjusted loan prices, withdrawn products, and raised rates as market expectations shift.

The average two-year fixed mortgage rate has risen from 4.83% at the beginning of March to 5.43%, while five-year fixed rates have increased from 4.95% to 5.45% during the same period—representing a significant increase in borrowing costs in just weeks.

The turmoil is largely driven by a rise in swap rates, financial instruments that banks use to price mortgages. These rates have climbed as investors reassess the trajectory of inflation and interest rates. Expectations that borrowing costs would decrease later this year have also been dashed; markets are increasingly considering the possibility that rates could remain elevated for an extended period or even rise further as inflation proves more stubborn.

The Bank’s Monetary Policy Committee now projects that Consumer Prices Index (CPI) inflation will reach around 3% in the second quarter of 2026, up from a previous forecast of 2.1%, with a potential peak of 3.5% later this year. Renewed inflationary pressure is further complicated by geopolitical tensions in the Middle East, which have driven up energy prices and unsettled global markets.

For homeowners, the impact is immediate. A shrinking number of mortgage deals and rising rates mean that borrowers coming off fixed terms will face significantly higher monthly payments, while first-time buyers are finding housing affordability increasingly strained.

Adam French, head of consumer finance at Moneyfacts, said: “Rates continue to climb as lenders scramble to keep pace with rising funding costs.

“The average two-year fixed-rate has gone from 4.83% at the start of March to 5.43% today, its highest level since February 2025. The average five-year fix has gone from 4.95% to 5.45%, now at its highest since July 2024. Even the very cheapest deals have shifted significantly.”

He added: “The combination of rising rates and falling choice is a direct response to the conflict in the Middle East which has dramatically shifted expectations around inflation and interest rates. Many deals are likely to return to the market in the coming days and weeks but repriced at higher rates.

“While a quicker resolution to the conflict could ease some of the 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.”