UK Mortgage Rates Increase Amidst Iran War Uncertainty

Heading into 2026, there was strong confidence that the Bank of England would introduce further base rate cuts throughout the year. The inflation rate target of 2% appeared to be a realistic achievement until the start of conflict in the Middle East.

However, as a consequence of the Iran war, energy prices have surged and there is a growing concern that inflation is set to rise to around 3% to 3.5%. Many mortgage lenders have removed cheaper deals from the market and there has been a rise in mortgage rates due to the ongoing uncertainty regarding the situation in the Middle East.

Average Two-Year Mortgage Deal Jumps by Over 1%

According to Moneyfacts, the average rate on a two-year deal was 4.83% in early March but the average rate has jumped to 5.90% in April. This represents the highest rate since July 2024 and will be a significant concern for homebuyers and those looking to remortgage in 2026.

Halifax shared that house prices fell by 0.5% in March with buyer demand slowing down as interest rate cuts now seem unlikely.

Head of mortgages at Halifax, Amanda Bryden, reflected upon how long the dip in demand could last, stating that it would “largely depend on how long‑lasting these pressures prove to be and the wider implications for the economy and unemployment”.

Mortgage lenders are expected to continue to take a cautious approach while energy prices remain high and there is no clarity around how long the Iran conflict is going to last. Petrol and diesel prices are now at the highest rate since late 2022, which has had an unexpected impact of inflation, indicating that the Bank of England may decide to raise interest rates to bring inflation down.

The Monetary Policy Committee (MPC) is set to meet on 30 April 2026, when they will reveal whether the current base rate of 3.75% will be adjusted to address the current inflation trends.