The UK mortgage market has been hit by its sharpest shock since the 2022 mini-Budget with rates rising rapidly and product choice shrinking in the space of a month.
New data from Moneyfacts shows average 2-year fixed rates have jumped from 4.84% to 5.84%, while 5-year fixes have risen from 4.96% to 5.75% following volatility triggered by the Iran conflict.
At the same time, the number of available mortgage products has fallen by more than 1,200 – around 17% of the market – marking the steepest contraction since the disruption seen in late 2022.
The shift is already feeding through into affordability, with typical borrowers now paying around £150 more per month on a £250,000 loan compared to just a few weeks ago.
BIG IMPACT
For those coming off older fixed deals, the impact is significantly greater, with repayments rising by more than £400 a month in some cases as borrowers refinance onto higher rates.
The cheapest deals have also moved sharply higher, with the lowest two-year fixed rate at 60% loan-to-value increasing from 3.51% to 4.60% as lenders reprice in response to rising funding costs.
The changes underline how quickly global events can feed into the housing market, with higher borrowing costs likely to weigh on buyer demand and transaction activity in the months ahead.
IRAN CONFLICT
Adam French (main picture, inset), Head of Consumer Finance at Moneyfacts, says: “The conflict in Iran quickly upended rate expectations and sent borrowing costs skyrocketing in the biggest shock to the UK mortgage market since the aftermath of the 2022 mini-Budget.
“Average mortgage rates have risen at pace, with two-year fixes increasing by 100 basis points from 4.84% to 5.84% in just one month and five-year fixes up by nearly 80 basis points, from 4.96% to 5.75%.
“The cheapest deals available to borrowers have moved dramatically too, the lowest two-year fixed rate at 60% LTV has increased by over 100 basis points from 3.51% to 4.60%.
“While this falls short of the extreme jumps seen in the aftermath of the mini-Budget, it is still a sharp and sudden shift that has materially worsened affordability in a very short space of time.”
PAYMENT SHOCK
And he adds: “For many borrowers, the cost could be significant. Someone taking out a typical 2-year fix will find it costs £150 more per month on average compared to just a few weeks ago.
“However, the real payment shock will be felt by those coming off older 5-year deals, where rates have more than doubled, pushing up repayments by many hundreds of pounds per month.
“The combination of rising rates, reduced choice and heightened volatility means borrowers and brokers are operating in a market where timing is critical and the window to secure competitive deals can be very short-lived.
“Unfortunately, anyone looking to buy or remortgage this year needs to prepare for substantially higher borrowing costs than expected before this conflict began.”
