Iran conflict will ‘knock borrower confidence’ as brokers face up to new rates reality
Mortgage market optimism has turned to despair within days and revealed a hard truth - it remains weak and vulnerable.
Escalating geopolitical tensions have pushed UK mortgage rates higher, with lenders rapidly repricing fixed deals or even withdrawing products after sharp movements in swap markets.
Brokers say this underlines how quickly mortgage rates can shift when wholesale funding costs move.
The market had begun the year on a more positive trajectory, with expectations that falling inflation and potential Bank of England rate cuts could gradually bring borrowing costs down.
But for Nouran Moustafa, executive financial and mortgage adviser at Roxton Wealth, the episode highlights how fragile the market’s recovery still is.
“The economy had only just started recovering, and the whole base rate and interest-rate situation had only just started settling down. Then [the response to the war] happened, and it has made everyone’s life hell because it has shown just how weak the market still is,” she said.
“I think the immediate panic in the mortgage market will calm down within a week or two. But in terms of base rate cuts and lenders becoming aggressive again, I do not see that. What I see instead is a stable but extremely cautious market over the next few weeks.”
Kessar Salimi, mortgage and protection consultant at Freedom Financial, said that many lenders have already increased products by as much as 0.75% with very little notice, while Anthony Emmerson, director at Trinity Financial, said the pace of repricing reflects movements in swap markets.
“The impact has almost been instant as swap rates have risen by as much as 0.5% on five-year fixes and lenders have already changed rates; from last Thursday being the first, to tonight being among the last to move,” he said.
Mortgage pricing is closely tied to swap rates, which reflect lenders’ funding costs and expectations around future interest rates. When those markets move sharply, lenders often adjust fixed-rate products quickly to protect margins.
The renewed volatility has also begun to disrupt hopes that mortgage rates could continue easing this year, as expectations around the interest rate outlook shift.
Matthew Arena, managing director at Brilliant Group, said the conflict could have wider economic implications for the mortgage market.
“Confidence is key. There is no doubt in my mind that the war will drive up inflation and will certainly knock borrower confidence, which will impact the market beyond the impact of swap rate pricing of mortgages,” he said.
Across the market, brokers say fixed-rate deals are currently the most exposed to changes in funding costs, with rapid repricing already taking place across both two- and five-year products.
Advisers are now moving quickly to secure deals for borrowers approaching remortgage before further increases filter through.
Emmerson said the rapid repricing has prompted brokers to act quickly to protect borrowers from further increases.
“We have been actively calling out to our remortgage clients to get as many of them locked into a better rate as soon as possible before rates are all repriced up,” he said.
