Key Takeaways
- UK mortgage rates have jumped since March, with two-year deals rising by around one percentage point.
- Markets now expect a Bank of England rate hike in June.
- Higher inflation and energy prices are increasing the risk of prolonged higher borrowing costs.
UK mortgage rates have surged back above 5% in recent weeks, catching buyers and homeowners off guard just months after expectations of cheaper borrowing costs.
The shift reflects a repricing of interest rate expectations in the wake of the Iran war, with markets now bracing for a rate hike by the Bank of England, rather than the rate cuts forecast earlier this year.
UK mortgage rates are rising quickly across both two- and five-year deals. According to data from Moneyfacts, the average two-year fixed rate has increased by one percentage point since the start of March—the biggest monthly rise since November 2022. The average five-year deal has risen by 0.79 percentage points, the sharpest increase since July 2023.
UK Mortgage Rates Outlook
- Mortgage rates back above 5% as Iran war shifts outlook.
- Markets now expect a possible Bank of England rate hike in June.
- Fixed-rate deals vanishing fast, with offers lasting just days.
- Rate cuts pushed back, with borrowing costs likely to stay higher into 2027.
Mortgage deals are disappearing faster than at any point since the 2022 minibudget crisis. The average “lifespan” of a mortgage product offer has fallen to just eight days.
With variable and tracker mortgages typically linked to the Bank of England base rate, and fixed-rate products priced off volatile interest rate futures, borrowers face growing uncertainty. The average two-year fixed rate—still the UK’s most popular mortgage product—now stands at 5.84%, higher than the 5.80% seen two years ago.
“While we expect that the Bank of England will mostly look through the impending inflation spike in coming quarters, futures markets have, at least for now, priced in a meaningful degree of monetary tightening,” says Morningstar economist Grant Slade.
“That is likely to keep upward pressure on UK mortgage rates while uncertainty around the conflict and energy prices persists.”
What Higher Mortgage Rates Means for Borrowers
- Monthly repayments are rising for new buyers and those remortgaging.
- Locking in now may mean paying more.
- Waiting carries risk if rates rise further after a June decision.
- Relief depends on inflation easing or economic growth slowing.
Will UK Mortgage Rates Fall in 2026 or 2027?
As a result of the disruption to the UK economy caused by the conflict in the Middle East, the BoE has pushed back its expectations for inflation hitting its 2% target into 2027. Those with a longer-time horizon can ride this period out, but for now, experts expect short-term pain to continue.
“The tide could turn once markets feel more confident about future rate pricing, but borrowers who are due to come off a deal soon will be incredibly frustrated by mortgage rate hikes,” says Rachel Springall, finance expert at Moneyfacts.
“If someone took out a typical mortgage now, compared with the start of March, it would cost them around £1,800 a year more in repayments on a two-year fixed deal.”
Why Are UK Mortgage Rates Rising This Year?
The housing market is an important part of the UK economy, impacting consumer sentiment and bank profitability.
The Bank of England’s base rate had been falling—from a 16-year high of 5.25% in September 2023 to 3.75% in January this year. Mortgage rates likewise fell, with average rates reducing through the 5% mark last year as lenders monitored Bank of England expectations of steadily falling inflation. After four interest rate cuts in 2025, markets expected two further rate cuts in 2026, taking the base rate to 3.25%.
Conflict in the Middle East has scuppered those projections and added fresh uncertainty to the mix, with the closure of the Strait of Hormuz causing an oil supply crisis. This renders energy importers like the UK vulnerable to the threat of rapidly-rising energy prices, according to bodies like the Organisation for Economic Co-operation and Development. March inflation figures, released on April 22, will be closely watched for signs of an inflation surge.
Though a two-week ceasefire in the second week of April served to calm some nerves about the length of the conflict, many expect a protracted disruption, with some even saying there could be a UK recession as a result of rising prices, possible Bank of England tightening, and taxation. Having predicted several rate cuts for 2026 back in January, futures markets now expect a rate hike in June.
What the Bank of England Will Do Next
The BoE is not only monitoring price rises. Credit defaults are also rising across both UK consumer credit and mortgages. In the first quarter of this year, the Bank of England recorded a mortgage default rate of 6.2%, the highest rate since the final quarter of 2024, when defaults hit 7.8% in the wake of the Bank’s rate hikes in 2023.
“With a million fixed-rate deals expiring by September and inflation heading toward 3.5%, the longer this goes on, the more defaults move from a slow creep to something banks have to take seriously,” says Raj Abrol, chief executive of online risk platform Galytix.
If the trend continues, this will be of deep concern to the government, which faces voters in local elections in May 7. Labour has set out its stall on improving economic growth, but the risk of recession looms large. This could, of course, push the Bank of England into lowering interest rates to stimulate growth, making short-term mortgages cheaper.
