Financial turbulence stemming from the Iran conflict has rippled through the United Kingdom’s mortgage market, producing price swings and product retrenchment comparable to previous national shocks, according to data from Moneyfacts.
Since the United States and Israel struck Iran on February 28, borrowing costs in Britain have climbed sharply, mounting a 90 basis point increase in market pricing to levels last observed in November 2023 when gilt yields rose as the Bank of England was raising rates to fight inflation.
Moneyfacts data shows that, over the 24 days following the initial strikes, the average two-year fixed-rate mortgage rose from 4.83% to 5.51% as of March 24. Five-year fixed-rate products also moved higher, increasing by 57 basis points to 5.52%.
The current episode of market disruption contrasts with previous periods of upheaval. During the COVID era, two-year pricing fell by 28 basis points as the Bank of England cut interest rates to support the economy. By contrast, the 2022 mini-budget crisis unleashed a much larger shock to mortgage pricing, with two-year rates rising about 180 basis points as international bond investors reacted negatively to the government’s fiscal plan.
Brokers say the present upheaval reflects how British lenders adjust home-loan offerings in anticipation of rate moves rather than waiting for formal changes in the official bank rate. Lenders frequently remove products from shelves in response to expectations of higher policy rates, sometimes doing so overnight, which accelerates pricing shifts in the market.
Moneyfacts reports that since the start of the Iran conflict, a net 21% of available residential mortgage products - equal to 1,780 products - have been withdrawn from the market. That rate of product removal has not yet reached the 45% retrenchment witnessed during the earlier COVID and mini-budget crises, but brokers expect lenders to continue repricing amid worries that the Bank of England may need to maintain tighter policy for an extended period.
The data underscores how geopolitical shocks can quickly translate into domestic borrowing cost volatility and product availability changes, affecting prospective homebuyers and the broader mortgage market in Britain.