New data from Moneyfacts shows the impact of the Iran conflict has been both immediate and widespread, with borrowing costs rising sharply and lenders withdrawing a significant number of products.

Average 2-year fixed rates increased by 100 basis points over the past month, climbing from 4.84% to 5.84%, while f5-year fixes rose by 79 basis points, from 4.96% to 5.75%. This represents the steepest rise in mortgage pricing since the market turmoil following the 2022 mini-Budget.

At the same time, product availability has contracted markedly. The total number of mortgage deals on the market has fallen by 1,283, equating to a 17% reduction in overall choice. This is the most significant contraction, by market share, seen since the disruption of late 2022.

The repricing has been particularly acute at the most competitive end of the market. The lowest available 2-year fixed rate at 60% loan-to-value has risen by 117 basis points, moving from 3.51% to 4.60% within a month, reflecting lenders’ response to higher funding costs.

AFFORDABILITY PRESSURES INTENSIFY

The rapid increase in rates has quickly fed through into borrower affordability. A typical borrower taking out a £250,000 mortgage now faces an additional £150 per month in repayments compared with costs at the start of the conflict, equivalent to £1,777 more per year.

Those borrowing at higher loan-to-value ratios are seeing even greater increases, with monthly costs rising by as much as £167.

However, the most pronounced impact is being felt by remortgage borrowers coming off older fixed deals. Many of these borrowers are facing rate increases of more than 300 basis points, resulting in monthly repayment rises of between £417 and £444, or more than £5,000 annually.

MARKET VOLATILITY RETURNS

Adam French, head of consumer finance at Moneyfacts, said: “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 5-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 2-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.”

SIGNIFICANT COST

And he added: “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.”

INCREASED PRESSURE

The latest figures underline how quickly external economic shocks can feed through into mortgage pricing, with lenders reacting swiftly to changes in swap rates and funding conditions. For brokers and borrowers alike, the pace of change is once again becoming a defining feature of the market.

With product ranges tightening and rates continuing to adjust, advisers are likely to face increased pressure to secure suitable deals quickly, particularly for clients approaching the end of existing fixed terms.

The scale and speed of the latest changes suggest a return to the heightened volatility last seen in late 2022, albeit without reaching the same extremes. Nevertheless, the direction of travel points to a more challenging lending environment in the months ahead.