Full Breakdown
Rising Mortgage Rates Amid Middle East Conflict
3/20/2026, 9:34:31 PM
Economic Impact of the Iran Conflict
The ongoing conflict in the Middle East, particularly the airstrikes by the United States and Israel on Iran, has significantly influenced global economic conditions, leading to rising mortgage rates in the UK. As of 16 January, the average rate for a new two-year fixed-rate mortgage was 4.78%, which increased to 5.20% by mid-March. This shift occurred despite the Bank of England maintaining its base rate at 3.75%. The conflict has triggered economic shocks, resulting in increased petrol and heating oil prices, which in turn have raised expectations for inflation and interest rates.
The Role of Swap Rates
Swap rates, financial instruments used by banks to manage interest rate risks, have risen sharply due to the heightened economic uncertainty. These rates reflect the market's expectations for future interest rates and have increased as investors anticipate a rise in rates. For instance, five-year swap rates surged from 3.603% to 4.03% in early March, indicating expectations of at least a 0.25 percentage point increase in rates over the next five years. This volatility in swap rates has led lenders to withdraw and reprice mortgage products at an accelerated pace, with a notable decline in the number of available residential mortgage products, dropping to 6,888 from 7,500 earlier in the month.
Official Statements & Responses
Economists and financial experts have expressed concerns regarding the impact of the Iran conflict on UK inflation and interest rates. Edward Allenby, a senior UK economist for Oxford Economics, noted that the conflict has disrupted a previously improving inflation outlook, leading to expectations that the Bank of England will maintain the base rate at 3.75% during its upcoming meetings. Thomas Pugh, chief economist for RSM UK, echoed this sentiment, stating that the recent volatility has ruled out any immediate rate cuts.
Criticism & Opposition
Critics argue that the Bank of England's decision to maintain interest rates amid rising inflationary pressures may not adequately address the economic challenges posed by the conflict. The rapid increase in mortgage rates has raised concerns among potential homebuyers and those looking to refinance, as lenders have begun to withdraw lower-rate products from the market. Rachel Springall, a finance expert at Moneyfacts, highlighted that hundreds of mortgage deals have been pulled in a short time frame due to rising swap rates.
Conflicting Reports & Gaps
While the Bank of England is expected to keep interest rates steady, there are differing opinions on the future trajectory of rates. Some economists believe that if the conflict resolves quickly and inflationary pressures ease, the Bank may resume its rate-cutting cycle as early as April. However, if energy prices continue to rise, a prolonged pause in rate cuts may be necessary.
Verbatim Quotes
- “The unrest in the Middle East has led to rising swap rates, which has inflated mortgage rates and caused deals to be pulled.” — Rachel Springall, Finance Expert at Moneyfacts
- “Edward Allenby, senior UK economist for Oxford Economics, said: "The UK inflation outlook was starting to brighten, but the conflict in the Middle East has thrown a spanner in the works.” — Edward Allenby, Senior UK Economist at Oxford Economics
- “A cut clearly makes no sense now. Given uncertainty about the outlook for energy prices, inflation and the economy, the most sensible thing for the Bank of England to do now is wait for more clarity. This rules out a rate cut next week and probably one in April too, unless there's a rapid resolution to the crisis.” — Anonymous Economic Analyst
As the situation evolves, the mortgage market is likely to remain volatile, with potential implications for borrowers and lenders alike.
