UK Mortgage Rates Surge as Middle East Conflict Sparks Inflation Fears
Major lenders raise rates up to 0.25% as geopolitical crisis disrupts Bank of England rate cut expectations and energy prices soar.
UK mortgage rates have reversed weeks of decline as lenders respond to escalating conflict in the Middle East, with HSBC, Nationwide, Virgin Money, NatWest and Coventry Building Society announcing increases of up to 0.25% across fixed-rate products.
The repricing marks an abrupt shift in a market that had been steadily improving since late 2025. According to Mortgage Solutions, the average two-year fixed rate residential mortgage has climbed from 4.32% to 4.82% as of 4 March, while the five-year fix rose from 4.94% to 4.96%. The catalyst: soaring oil and gas prices following US and Israeli strikes on Iran that sent energy markets into turmoil.
Geopolitics Rewrites the Rate Outlook
The two-year swap rate rose from 3.33% on 27 February to 3.65% by 6 March, while the five-year swap rate climbed from 3.5% to 3.8%, according to Moneyfacts. Swap rates — the benchmarks lenders use to price fixed mortgages — move in tandem with market expectations for Bank of England policy. In late February, traders had fully priced in two Bank of England rate cuts by the end of 2026, but by 3 March, the chance of two rate cuts had been completely wiped out, according to the HomeOwners Alliance.
The shift reflects a brutal recalculation of Inflation risk. Since the first US strikes on Iran on Saturday, Energy Prices have soared, with the oil price increasing to 84$/barrel (Brent Crude) and UK gas prices to 139p/therm (up 15% and 78% respectively since the weekend), NIESR reported. Iran has disrupted shipping through the Strait of Hormuz — a narrow waterway through which a fifth of all global oil flows, according to Al Jazeera.
The UK remains heavily dependent on gas for heating and electricity generation. For UK households, wholesale gas prices matter because they are a key driver of domestic energy bills, meaning a prolonged spike could push up costs in the months ahead. UK inflation stood at 3.4% in December 2025, already above the Bank of England’s 2% target.
Which Lenders Are Moving
Nationwide increased selected fixed rates by as much as 0.25%, impacting first-time buyer, homemover, existing homemover, remortgage, switcher and additional borrowing products. Virgin Money has also made increases of up to 0.25% across selected products, including purchase, remortgage and product transfer deals. NatWest’s mortgage rate changes will apply from 7 March, with increases of up to 0.16% to its purchase, remortgage, first-time buyer, shared equity, green and buy-to-let (BTL) pricing. HSBC and Coventry Building Society also announced increases, with Coventry implementing increases across all fixed rates for new and existing borrowers from Monday.
Nick Mendes, mortgage technical manager at John Charcol, told Mortgage Solutions: “HSBC, Virgin Money, Coventry Building Society and Nationwide have all issued repricing notices over the past 12-24 hours, and NatWest now joining that group shows how quickly lender pricing can respond when funding costs move.”
Bank of England Caught Between Risks
Spending is comparatively weak right now, but inflation is above the 2% target. It was at 3.4% in December 2025 but the Bank expects it to reach 2% in spring 2026, the Bank of England stated in February. At its meeting ending on 4 February 2026, the Monetary Policy Committee voted by a majority of 5–4 to maintain Bank Rate at 3.75%. The next decision is scheduled for 19 March.
Energy-driven inflation complicates the calculus. A one-year persistent shock would push inflation up by 0.7pp and dampen output growth by 0.2% in 2026, according to NIESR modelling. If the shock persists, the Bank of England could be forced to raise interest rates back above 4%. Consumer price inflation in the European Union could rise by more than a percentage point if the conflict drags on for several months, Holger Schmieding, chief economist at Berenberg bank, told CNN.
“The conflict in the Middle East has led to market expectation of higher inflationary pressure causing rate cuts to be slowed or put on hold.”
— David Hollingworth, L&C Mortgages
Housing Market Recovery Interrupted
The rate reversal comes just as the UK Housing Market was showing signs of stabilisation. Approximately 1.8 million fixed-rate mortgage deals are scheduled to end in 2026, with most borrowers requiring new home loans, according to PropertyWire. New buyer enquiries improved again in January, with the net balance rising to -15%, up from -21% in December and -29% in November. Agreed sales followed a similar trend, with the latest net balance of -9%, the least negative reading since June 2025, the RICS January survey showed.
That momentum now faces headwinds. Taylor Wimpey reduced its dividend payout to shareholders by nearly a fifth after reporting a 54% drop in pre-tax profits to £146.5 million last year. Chief executive Jennie Daly said 2026 would be challenging with “probably a much lower increase in volumes” than last year. Most forecasters had expected house prices to rise 2-3% in 2026, supported by falling mortgage costs and improving affordability. Those projections are now under review.
- Mortgage rates have reversed weeks of declines, with average 2-year fixes jumping 0.50pp to 4.82%
- Market now expects only one BoE rate cut in 2026, down from two cuts priced in late February
- Energy prices up 15-78% since conflict began, threatening to push UK inflation above 4%
- 1.8 million borrowers face remortgaging in 2026 into a deteriorating rate environment
- Housing market recovery showing early signs of stalling as affordability pressures return
European Context
The UK’s mortgage rate trajectory diverges from much of Europe, where rates remain significantly lower. Spanish banks are offering home loans around 2.98%, the lowest in the Eurozone, while France’s average for new borrowers is roughly 3.11%, according to mid-2025 data from Upscore. The gap reflects both the UK’s higher base rate (3.75% versus the ECB’s 2.0%) and structural differences in mortgage markets. The ECB noted that inflation should stabilise at the 2% target over the medium term, while staff projections put growth at 1.4% in 2025 and 1.2% in 2026.
What to Watch
The Bank of England’s 19 March decision will signal whether policymakers view the energy shock as transitory or a fundamental threat to the disinflation path. Market pricing suggests a hold is now near-certain. Borrowers should monitor swap rate movements daily; any sustained move above 4% on 5-year swaps would likely trigger another wave of repricing. Energy markets remain the critical variable: if Brent crude holds above $85/barrel through April, inflation could print above 3.5% in Q2, forcing the MPC to delay cuts until late 2026 or beyond. For the 1.8 million households facing remortgaging this year, the advice is increasingly clear: lock rates sooner rather than later, and prepare for monthly payments potentially 20-30% higher than current deals.