Mortgage Market Contracts by Nearly One-Fifth Following Middle East Conflict
The number of mortgage products available to UK homeowners has plummeted by almost 20% since the outbreak of war in Iran just over three weeks ago, as lenders scramble to adjust to volatile financial conditions. According to the latest data from financial information platform Moneyfacts, approximately 1,500 residential mortgage deals have vanished from the market since March 9, representing a significant contraction of 19.5%.
Swap Rate Surge Forces Lenders to Withdraw Products
This dramatic reduction comes as swap rates, which lenders use to price mortgages based on market expectations of future central bank rates, have soared in response to geopolitical tensions. Adam French, head of consumer finance at Moneyfacts, told Capital Post that earlier optimism about affordability returning to 2021 levels has "collapsed" in the wake of the Iran conflict.
The situation has been exacerbated by the Bank of England's recent monetary policy decisions. Governor Andrew Bailey indicated that interest rate cuts were "not on the horizon" after the Monetary Policy Committee expressed ongoing concerns about persistent inflation. Markets are now pricing in an elevated interest rate path, with JP Morgan economist Allan Monks forecasting at least two rate increases from the Bank this year.
Rising Rates and Inflationary Pressures
Average mortgage rates have climbed substantially since the beginning of March. The typical two-year fixed-rate mortgage has jumped from 4.83% to 5.43%, while five-year deals have risen from 4.95% to 5.45%. These increases reflect growing fears that the Bank of England's 2% inflation target may be pushed further out of reach due to soaring gas and oil prices resulting from tensions in the Gulf region.
Justin Moy, managing director at EHF Mortgages, warned: "If the conflict in the Middle East doesn't end soon, this could become reality for UK homeowners, as rates will inevitably need to increase to balance inflationary pressures, bringing misery to mortgage holders and businesses, and the economy as a whole."
Lender Responses and Market Comparisons
The pace of mortgage product withdrawals has accelerated rapidly, with 744 deals disappearing since last Thursday alone. Moneyfacts revealed earlier this week that nearly 500 homeowner mortgages vanished from the market in mere days, marking the fastest rate of lenders pulling deals since the turmoil following Liz Truss's mini-budget.
Major financial institutions have already begun adjusting their offerings. Barclays implemented a 0.1% rate increase on selected products, including residential purchase and remortgage ranges, at the beginning of the month as the conflict escalated. Several building societies, including Nationwide, Coventry Building Society, Yorkshire Building Society, and Nottingham Building Society, have all adjusted pricing on their fixed deals in response to market conditions.
Moy added that the government faces a challenging balancing act with fiscal policy, noting there is "little headroom in the chancellor's figures" and warning that this situation "could trigger another explosion of public spending." The mortgage market contraction represents one of the most significant financial consequences of the Iran conflict for UK consumers, with implications for housing affordability, consumer spending, and broader economic stability.
