UK mortgage holders are facing the highest borrowing costs in three years after Donald Trump signalled an escalation in the Iran conflict.
The average rate on a five-year fixed mortgage has risen from 4.95% at the start of March to 5.78%, its highest level since November 2023. Two-year fixed deals have also jumped, climbing from 4.83% to 5.89%, the highest since July 2024.
Markets have rapidly repriced interest rate expectations, with investors now anticipating the Bank of England will raise rates from 3.75% to 4.25% by September to address inflationary pressures linked to the conflict.
Adam French of Moneyfacts said the situation represents the most significant shock to the UK mortgage market since the aftermath of the 2022 mini-Budget, with the Iran crisis quickly driving up borrowing costs.
Stocks rallied and oil prices eased on Wednesday after Donald Trump suggested the US and Iran were close to reaching a peace deal.
However, that optimism proved short-lived. By Thursday, markets had turned lower, with Brent crude jumping 8% to $109 per barrel as fresh comments from Trump reignited concerns over a prolonged conflict.
