The ongoing conflict involving Iran is triggering significant volatility in Britain’s mortgage market, levels not witnessed since the COVID-19 pandemic and the 2022 mini-budget crisis. Data from Moneyfacts highlights the global impact of the conflict, with British borrowing costs climbing sharply. Since February 28, following strikes involving the U.S. and Israel, borrowing costs have risen a substantial 90 basis points, reaching levels last observed in November 2023 during heightened Bank of England activity to combat inflation.
In the 24 days since the conflict’s escalation, the average two-year fixed-rate mortgage has increased from 4.83% to 5.51% as of March 24, according to Moneyfacts. Five-year mortgages have also seen a notable rise of 57 basis points, settling at 5.52%. This contrasts with a 28 basis point decrease in two-year pricing during the COVID-19 pandemic when the Bank of England reduced rates to stimulate the economy. However, it remains less severe than the 180 basis point surge experienced during the 2022 mini-budget crisis, which was driven by international investor concerns over the government’s tax-cut plans.
The current market disruption stems from the proactive repricing strategies employed by British banks. Instead of waiting for official interest rate adjustments, banks respond to anticipated hikes by withdrawing mortgage products, often with immediate effect, brokers report. Moneyfacts indicates that a net 21% (1,780) of available residential mortgage products have been removed from the market since the conflict began.
Although the current product withdrawal rate is lower than the 45% observed during the COVID and mini-budget crises, brokers anticipate continued repricing activity by banks. This concern is fuelled by expectations that the Bank of England may need to maintain a tighter monetary policy for an extended period to manage inflationary pressures amidst ongoing global uncertainty.
