Homebuilders also flag higher costs and weaker buyer confidence
Britain’s mortgage market has been jolted by the Iran conflict, with fixed-rate pricing and product availability moving at a pace not seen since the pandemic disruption and the 2022 mini-budget turmoil, according to figures from Moneyfacts.
Since the US and Israel first struck Iran on February 28, UK borrowing costs have climbed by about 90 basis points, taking gilt yields back to levels last seen in November 2023, when the Bank of England was raising rates to contain inflation.
Moneyfacts data shows that, over the 24 days to March 24, the average two-year fixed mortgage rate increased from 4.83% to 5.51%. Over the same period, the average five-year fixed rate rose by 57 basis points to 5.52%.
The latest moves differ in shape from earlier shocks. During the COVID-19 period, two-year fixed pricing fell by 28 basis points as the central bank cut interest rates to support the economy. By contrast, the mini Budget episode in 2022 triggered a much sharper repricing, with two-year mortgage rates rising by about 180 basis points as global investors sold UK government bonds amid concerns over increased borrowing.
Brokers said the current turbulence reflects how lenders often react to expectations of higher rates. Rather than waiting for an official policy change, banks may remove products and reissue them at new prices, sometimes with little notice, to manage pipeline risk.
“Mortgage pricing is moving in real time and does not simply wait for the next Bank of England decision,” said Nicholas Mendes, mortgage technical manager at John Charcol. “Markets may have calmed a touch, but lenders are still dealing with a more volatile funding backdrop and that is continuing to feed into live pricing.”
Moneyfacts said that, since the Iran conflict began, a net 21% of residential mortgage products — 1,780 deals — have been withdrawn from the market. While that remains below the scale of withdrawals seen during the pandemic and the 2022 mini Budget period, brokers said further repricing was likely if markets continue to assume that interest rates will stay restrictive for longer.
“Some lenders are pulling their entire mortgage ranges while they try to price their products, citing extreme market volatility,” said Aaron Strutt, product director at Trinity Financial. “Swap rates instantly fell on the back of news of peace talks between Iran and America, but for the moment, the price rises are still coming through.”
Instability is also showing up in construction and housebuilding data, adding another complication for lenders and brokers assessing pipeline volumes and buyer confidence.
Glenigan, a construction data firm, reported that the value of new projects dropped by more than a third in the three months to the end of February, with schemes classified as “major works” — those valued above £100 million — seeing the steepest decline.
Homebuilders are also warning that the renewed volatility could undermine a tentative improvement in spring activity. Bellway cut its profit margin outlook after keeping incentives in place to attract buyers, while reiterating concerns about the potential impact of the Middle East conflict on affordability and build costs.
The company reported that underlying operating profit rose 1.5% to £159 million for the six months to January 31. However, Bellway said that increased sales incentives — about 5% of selling prices, up from around 4% a year earlier — had weighed on margins. Incentives, including help with deposits, were described as important in sustaining early-season reservation rates.
Bellway now expects an operating margin of about 10.5% for the year through July, down from a previous forecast of 11%, aligning with other listed housebuilders that have highlighted cost inflation and reduced affordability.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
