Mortgage shock returns as Iran war sends borrowing costs soaring

Britain’s mortgage market has suffered a sharp reversal as renewed fighting in the Middle East pushes up energy prices, fuels inflation fears and drives lenders to pull more than 100 deals from the market.

Major banks including Santander, Barclays, HSBC and Halifax have all repriced or withdrawn mortgage products over the past week as financial markets react to the escalation of the US-Iran conflict and disruption around the Strait of Hormuz.

The average two-year fixed mortgage rate climbed to 5.59 per cent on Friday, up from 5.46 per cent just two weeks earlier, according to Moneyfacts. Five-year fixed deals also increased from 5.48 per cent to 5.61 per cent over the same period.

The rise marks a return to levels last seen before hopes of a sustained easing in borrowing costs emerged. Earlier falls in mortgage pricing followed a brief improvement in the Middle East conflict and a drop in oil prices, but renewed hostilities have reversed those gains.

Higher oil prices are feeding concerns over inflation, raising the prospect that interest rates could remain higher for longer. Mortgage pricing is heavily influenced by swap rates, which have moved higher as investors reassess the future path of monetary policy.

Rachel Springall, finance expert at Moneyfacts, said borrowers would be frustrated by the sudden reversal.

“The positive progress over recent weeks now feels all but lost, but what the market needs is a period of stability,” she said.

She warned lenders had been forced to reconsider pricing strategies, with more than 100 mortgage products disappearing from the market in a single week.

The pressure comes at a difficult time for homeowners already facing higher refinancing costs. Borrowers coming off ultra-low fixed deals from previous years now face significantly more expensive repayments.

Meanwhile, changing buyer behaviour highlights the strain facing the housing market. Barclays data showed 37 per cent of mortgage completions in June involved solo buyers, compared with around 15 per cent before 1980.

The average house deposit has also fallen almost 25 per cent year-on-year, pushing more buyers towards larger mortgages and higher loan-to-value borrowing.

For households hoping that falling rates would revive affordability, the latest market shock is a reminder that global instability can quickly feed through into Britain’s housing costs.