As part of our ongoing commitment to provide you with everything you need to know about the UK property market, we’re examining the property mortgage market and what that means for homebuyers looking for a new home.
With the first three months of the year now behind us, the original predictions laid out by experts have rapidly changed, driven by the ongoing Middle East conflict and the subsequent potential for interest rates to rise this year.
With this in mind, we’re taking a look at current mortgage rates, predictions for the rest of the year and what this could mean if you’re buying or remortgaging.
What are the key developments so far?
Changes to interest rate predictions: Prior to the Middle East conflict, it was predicted the Bank of England would make potentially two interest rate cuts during 2026. Instead, interest rates were held at 3.75% during March and it’s now expected there’ll be two interest rate increases, potentially taking them to 4.25%.
Mortgage rates have risen: Multiple lenders, including Halifax, Santander, Barclays and HSBC have all announced rate increases recently, with the average five-year fixed rate now at 5.54% and average two-year fixed rate now at 5.56%. This means the average mortgage is now £85 more expensive per month than it was before the Middle East conflict.
Housing market begins to soften: It’s expected that if the Middle East conflict becomes any more prolonged, the UK housing market may soften in the face of rising mortgage and energy costs. According to Robert Gardner, Chief Economist at Nationwide, if the higher rates are sustained, it ‘could reverse some of the improvement in housing affordability that has taken place in recent years.’
What are we expecting to happen over the next year?
A large part of what might happen going forward depends on the Middle East conflict. Already we’re seeing multiple lenders withdrawing certain products and mortgage deals lasting around two weeks on average, according to Moneyfacts.
The last time we saw deals this short was around October 2022, when the announcement of the mini-budget impacted a broad range of mortgage products.
According to David Hollingworth from L&C:“(The) swing is causing significant volatility and fixed rate mortgages continue to be priced higher by lenders.
“Those hikes keep on coming as many lenders enter their third or fourth round of product changes in the last two to three weeks. That has seen a surge in borrowers rushing to lock in a rate before further increases take hold.
“You’ve got to expect at the moment that this kind of volatility that we’ve been seeing in the last three weeks, you’ve got to assume it is set to continue because it’s only gathered pace.”
Obviously, this is impacting the choices that many buyers are making. David Hollingworth continues:
“Borrowers need to think carefully about whether long-term security would suit them better, rather than heading straight for the lowest rate.
“Key factors include whether you may move soon, how much you need the security of fixed payments for longer and how well you could weather a rise in mortgage bills.”
While fixed rate mortgages offer borrowers certainty, those opting for a two-year fixed product are essentially backing interest rates falling, so that when it’s time to remortgage, bills aren’t rising.
Those opting for five-year fixed products are locking in rates either because they need the security or they believe that rates may rise again in the near future.
Regardless of what you opt for, it’s always worth speaking with a mortgage advisor or specialist about what options are available to you and what will work best, particularly if you’re looking at buying in the near future.
In terms of predictions, it’s difficult to provide a more certain answer when the market is so volatile. The Bank of England is worried about the potential of rising inflation and with the next decision around interest rates occurring at the end of April, we’ll have no solid answer until then.
