Mortgage Rate Increases Persist Amid Market Volatility
Mortgage rates continue to rise rapidly, with borrowers advised to brace for further fluctuations in the coming days and weeks. Despite US President Donald Trump’s remarks on "constructive" discussions with Iran providing only brief market relief, mortgage brokers report ongoing rate hikes and deal withdrawals by major lenders. This leaves borrowers uncertain about securing favorable terms and pressured to make swift decisions.
Impact on First-Time Buyers and Low-Deposit Deals
Low-deposit mortgage deals, which are particularly popular among first-time buyers, are experiencing significant reductions. More deals were withdrawn in a single day recently than at any point since the 2022 mini-Budget. Rachel Springall, representing financial information provider Moneyfacts, commented on the situation:
"There appears to be no rest in sight for more upheaval to the mortgage market."
"It will be essential for borrowers to seek independent advice to keep on top of the mortgage mayhem."
Springall highlighted the challenging reality for first-time buyers, who now face average interest rates exceeding 6% on two-year mortgages while only able to provide a 5% deposit. This scenario results in an annual cost increase of approximately £1,200 compared to similar deals available at the start of March, based on a £250,000 loan over 25 years.
Since 6 March, over 200 such mortgage deals have vanished from the market. Notably, Saturday saw the largest single-day withdrawal since the mini-Budget, with 52 deals removed, followed by an additional 30 withdrawals early on Tuesday.
Fixed-Rate Mortgage Dynamics and Market Expectations
Borrowers with fixed-rate mortgages maintain their current interest rates until the deal expires, typically after two or five years, at which point they select a new mortgage deal. Prior to the onset of the US-Israel conflict involving Iran, financial markets anticipated UK interest rate cuts within the year. This expectation had been reducing lenders’ funding costs and lowering rates on new fixed mortgages.
However, the conflict has disrupted these forecasts. Presently, the average rate on a two-year fixed mortgage stands at 5.51%, the highest since February last year, rising from 4.83% at the beginning of March, according to Moneyfacts data. Similarly, the average rate on a five-year fixed mortgage has increased from 4.95% at the start of March to 5.52%, marking its highest level since July 2024.
More than 20% of mortgage products available at the start of March have been withdrawn from the market.
Broker Perspectives on Market Challenges
Aaron Strutt of broker Trinity Financial described the difficulties lenders face in pricing mortgages and providing fixed-rate deals to both new and existing customers amid rapid rate increases:
"It is becoming increasingly difficult for borrowers to work out if they are getting a decent fixed rate and how long they will have to apply for a deal."
"I suspect the cheapest rates have a shelf life of three or four days at the moment."
David Hollingworth from broker L&C advised borrowers to anticipate a turbulent period for mortgage rates until the situation in the Middle East becomes clearer:
"Let's hope the talk of an easing in the conflict takes shape which should help the market find a level as it tries to predict what this may mean for the longer term interest rate outlook."
