Market signals offered reasons for encouragement, but the latest conflict threatens to undo the optimism
UK mortgage brokers head into the spring market with two opposing forces in play: a modest recovery in house prices at home and fresh geopolitical tension pushing global borrowing costs higher.
Nationwide data show UK house prices rose 0.3% in February, matching January’s gain and taking the average home to £273,176, with annual growth around 1%. That fits with forecasts of a slow grind higher through 2026 as affordability inches back and first‑time buyers re‑emerge.
READ MORE: Mood improves but clients aren’t rushing in just yet
At the same time, US‑Israeli airstrikes on Iran have driven oil sharply higher and rattled bond markets worldwide, threatening to stall or reverse the recent improvement in mortgage pricing.
A better start to 2026 – now under pressure
The Guardian notes that February’s rise “avoided a repeat of the ‘negative speculation’” around property tax that weighed on the market before last November’s budget. Chancellor Rachel Reeves’s upcoming spring fiscal forecast has, so far, not generated the same jitters, allowing sentiment to stabilise.
Key domestic points:
Modest recovery underway. Nationwide’s figures point to a gentle rebound after a dip at the end of 2025, helped by easing affordability and better mortgage availability.
Rising activity. Housing transactions were up about 10% in 2025 versus 2024, with first‑time buyers expected to power much of 2026 demand.
Rates edging lower. The Bank of England’s “effective” interest rate on new mortgages slipped to 4.09% in January, from 4.15% in December, even as approvals fell to 59,999 – the lowest in two years.
Combined with falling long‑term rates into early 2026, this gave brokers the beginnings of a more “normal” spring: sharper pricing, more product choice and clients finally moving out of “wait and see” mode.
How the Iran conflict hits UK mortgage rates
The new Middle East flare‑up now threatens that improvement via oil and bond yields.
From the UK side, Brent crude jumped as much as 13% on the strikes, to around $82 a barrel, on fears of supply disruption. Higher energy costs make it harder for the Bank of England to bring inflation back to 2%, even though headline CPI had been expected to hit that level by April. Markets cut the odds of a March BoE base‑rate reduction from about 80% to 50% after the oil spike.
Globally, the dynamic looks very similar. Just as investors had pushed the US 10‑year Treasury yield down to an 11‑month low near 3.92%, weekend strikes on Iran sent it back up to roughly 4.03%, with the 30‑year also moving higher. Instead of the classic “flight to safety” into government bonds, the mix of higher oil, sticky inflation and measured rhetoric from Washington and Tehran produced higher – not lower – long‑term yields.
For UK brokers, the takeaway is straightforward:
- If investors demand more compensation for inflation and geopolitical risk, gilt yields and SONIA swap rates will stay higher than they otherwise would.
- Because fixed‑rate mortgages are ultimately priced off those curves plus lender margins, that caps how far and fast lenders can keep cutting.
Where war used to almost guarantee a strong bond rally, it can now push yields up if markets conclude inflation will stay stubborn.
Three rate paths UK brokers should plan around
Adapting the US‑focused framework in the MPA analysis to the UK context gives three broad paths for the next few months.
1. Contained conflict, oil spike fades
- The conflict remains contained; energy flows normalise.
- Brent gives back part of its gains; markets refocus on domestic data rather than war headlines.
- Gilt and swap rates drift lower again, allowing gentle cuts to 2‑ and 5‑year fixes, especially at lower LTVs.
This would support the Guardian’s picture of “a modest recovery” with improving affordability and a spring market powered by first‑time buyers.
2. Prolonged disruption, ‘higher‑for‑longer’ yields
- Shipping or supply is impaired for longer; crude stays elevated.
- Inflation worries dominate; term premiums on gilts remain high, and BoE cuts are seen as fewer and later.
- Swap rates plateau or grind higher. The mortgage rally stalls and lenders reprice popular fixes upwards, tightening criteria at higher LTVs.
Under this scenario, affordability tightens just as a wave of borrowers – including many of the 1.8m households rolling off ultra‑low five‑year fixes this year – come to market to refinance. Many will still “avoid the worst of the mortgage crisis” but face painful payment jumps nonetheless.
3. Escalation plus global growth scare
- The conflict escalates and oil stays expensive, but attention shifts to global growth risk.
- If higher energy costs undercut spending and investment, markets could mark down long‑term growth and inflation expectations.
- Gilts and other core bonds then rally despite high oil, pulling yields – and ultimately fixed mortgage rates – down again, but with more volatility and wider credit spreads.
This would offer borrowers “another leg down” in fixed‑rate quotes, but with choppier repricing and a bigger premium on complex or higher‑risk lending.
