The mortgage market is showing resilience despite a sharp rise in borrowing costs with demand, lending activity and affordability holding up so far this spring.
Data from Rightmove shows the average 2-year fixed rate has climbed to 5.42%, up from 4.25% prior to the escalation in the Middle East, adding around £235 a month to a typical new mortgage.
Despite this, buyer demand has remained relatively steady. Enquiries in April are running 7% below last year, while agreed sales are just 3% down, suggesting activity has stabilised following the initial rate shock.
Affordability pressures are being partly offset by wage growth, with average earnings up 3.9% annually, alongside more flexible lending criteria following last year’s regulatory review.
FIRST-TIME BUYERS
First-time buyers have proven particularly resilient, with demand in the most mortgage-reliant segment down just 6%, indicating higher rates have yet to significantly deter new entrants.
At the same time, supply remains elevated, increasing competition among sellers and helping to keep price growth in check. The average asking price rose by 0.8% in April, below the long-term seasonal norm.
Matt Smith, Mortgage Expert at Rightmove, said: “At the start of the year there was growing optimism that Base Rate would continue to fall, but that picture has shifted following the conflict in Iran.
“Financial markets are now largely pricing in further Bank of England Base Rate increases this year rather than cuts, which has fed through into higher mortgage rates compared with earlier in 2026 and this time last year.
“The initial shock appears to have passed, with mortgage rates stabilising over the past couple of weeks, but they remain elevated. The next moves will depend on upcoming UK inflation data and how the Bank of England responds. If policy decisions align with current market expectations, a period of relative stability is more likely than meaningful falls.”
COST OF LIVING
Colleen Babcock (main picture, inset), Property Expert at Rightmove, added: “Some buyers will be feeling cautious due to cost of living and mortgage rate increases.
“However, the latest data shows that, at least for now, home-movers are largely showing their usual resilience with their housing needs trumping other events.
“While higher mortgage rates negatively affect affordability, many buyers are also benefiting from rising wages, lower house prices and more flexible borrowing criteria than in recent years, which all help affordability.”
INDUSTRY REACTION
Tomer Aboody, director of specialist lender MT Finance, said: “With mortgage rates fluctuating due to global affairs, along with lower economic uncertainty due to the Labour government, we are seeing a lower number of transactions but only slightly down compared with this time last year.
“With buyers having more options as more homes come to market, prices are still buoyant although rising at a much slower pace. Buyers are slowly realising that the days of virtually “free money” are long gone, and that current rates are actually more or less in line with historical averages, give or take 100 basis points.”
COSTS YET TO KICK IN
Tom Bill, head of UK residential research at Knight Frank, said: “The fact mortgage offers last for several months means the spike in borrowing costs has not fully kicked in yet for buyers.
“A seasonal increase in activity, combined with the fact that supply fell more notably than demand in response to the Middle East conflict, has kept upwards pressure on prices and prevented a cliff edge moment for the housing market.
“However, the inflationary shock of higher energy prices will put upwards pressure on rates and keep house prices in check for several months. We expect there will be a smaller impact on transaction levels.”
LINGERING AFTEREFFECTS
And Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “There’s no question war in the Middle East has had an impact on property market activity with hostilities continuing but not as severe as feared.
“Although the Rightmove data reflects asking, rather than achieved, prices, steeper reductions might have been an early warning of tougher times ahead bearing in mind worries over affordability and especially mortgage rates.”
LIMITED CHOICE
And he added: “However, in our offices the negative effects have also been relatively limited to date with the overwhelming majority of sales proceeding as well as new listings and buyer enquiries steady. On the other hand, the amount of choice of some property means prices remain flat and transaction times are lengthening.
“We have been involved in some fairly intense negotiations too with existing as well as new buyers and sellers trying to factor in anticipated increases in costs.
“Looking forward, we don’t expect much to change at least until the beginning of the end of the uncertainty is in sight although even then, the aftereffects will inevitably linger.”
