By Clare Yates
5 min read
If you’ve been keeping an eye on mortgage deals lately, you will have noticed an unwelcome shift: rates are heading back up. And for many borrowers, it feels like it’s happened pretty quickly.
Ongoing global tensions – including the conflict involving Iran – alongside growing talk of “Trumpflation” in the US, are adding fresh uncertainty to inflation and interest rate expectations, and that’s feeding directly into higher mortgage rates.
Rates were starting to settle – then things changed
For the first couple of months of the year, there were signs that mortgage rates were stabilising. According to Moneyfacts data, the average two-year fixed mortgage rate stood at 4.83% at the start of this month. Already, it has climbed to 5.28%. Five-year deals have reached roughly 5.32%.
What’s notable here is that the Bank of England’s Monetary Policy Committee hasn’t increased the base rate for months – it has held steady at 3.75% since December 2025. Normally, you’d expect mortgage rates to closely follow the base rate. But this time, something else has stepped in.
Global conflict has shaken expectations
The key turning point has been escalating conflict in the Middle East, particularly following US and Israeli airstrikes on Iran. These events have triggered wider economic uncertainty. We’ve seen stock markets fall, and energy prices, including petrol and heating oil, rise. That feeds into expectations that inflation could increase again.
And that’s the crucial link. When inflation is expected to rise, interest rates are less likely to fall – and could even increase.
Earlier this year, many economists thought the Bank of England would cut rates during 2026, potentially bringing them down from 3.75% to around 3.25%. It was hoped that the mortgage price war seen in early 2026 would continue. But those expectations are quickly shifting.
Instead of rate cuts, the focus has moved to controlling inflation. That means borrowing isn’t getting cheaper anytime soon – and mortgage pricing has adjusted accordingly.
Why mortgage rates don’t just follow the base rate
To understand what’s happening, it helps to look at how mortgages are actually priced.
Most UK mortgages are fixed-rate deals, typically lasting two, three or five years. Lenders fund these deals using a mix of customer deposits and money borrowed from financial markets. A key part of this process involves something called “swap rates”. These are used by lenders to manage the risk of interest rate changes.
Adam French, head of consumer finance at Moneyfacts, explained in The Guardian that lenders effectively swap variable interest costs for fixed ones to reduce uncertainty. In simple terms, this allows them to offer fixed-rate mortgages without taking on too much risk.
Swap rates are heavily influenced by expectations of future interest rates and inflation. So when global events push those expectations higher, swap rates rise – and mortgage rates tend to follow.
Olly Cheng of Rathbones also noted that while lender margins and competition play a role, swap rates remain the biggest driver of mortgage pricing.
What this means for borrowers right now
The impact is already being felt.
On 19 March, figures reported by the BBC reveal that the average two-year fixed rate has risen to 5.28%, while five-year deals have reached 5.32%. That’s the highest level for many of these products in over a year.
In practical terms, this is adding hundreds of pounds to annual mortgage costs. For example, a typical £250,000 mortgage over 25 years is now about £788 a year more expensive than before the Iran conflict began.
At the same time, lenders have been pulling some of their most competitive deals. Sub-4% mortgages have largely disappeared from the market, and the number of available products has dropped.
Will rates keep rising?
That’s the big question, and right now, there’s no clear answer. Much depends on how the global situation develops. If inflation pressures continue to build, mortgage rates could remain elevated or even rise further.
However, it’s worth remembering that fixed-rate mortgages still offer certainty. If you’re already on a deal, your rate won’t change until it ends.
What you can do next
If your current mortgage deal is due to expire soon, planning ahead is more important than ever.
If your current mortgage deal is coming to an end, it’s worth knowing that many lenders let you secure a new rate up to six months in advance. That means if you find a competitive deal now, you can lock it in ahead of time. Even if rates continue to rise in the meantime, you’ll already have that rate secured and ready to switch to when your existing term finishes, giving you a bit more certainty in an otherwise uncertain market.
It’s also a good time to review your budget carefully. With wider cost-of-living pressures like rising energy prices, understanding what you can comfortably afford is key.
