UK mortgage rates dip from war-driven peak as lenders cut new deals amid truce hopes

Major mortgage lenders are making what they describe as meaningful cuts to rates on new deals, offering some relief to first-time buyers hit by the economic impact of the Iran war. Money markets have taken heart from hopes of a long-term truce, halting a rapid rise in borrowing costs and nudging rates lower.

Experts say there is now some momentum behind mortgage rate reductions, but the situation remains delicate and borrowers are still exposed to sudden shifts in costs. Lenders, including Halifax, HSBC and Santander, have lowered rates on new fixed deals in recent days as market pricing adjusts.

The shift follows a drop in swap rates — the market measure that reflects expectations for the Bank of England’s next moves on interest rates. Hopes of an end to the war, or at least a temporary ceasefire, have eased fears of runaway inflation and lowered expectations of further Bank rate rises, feeding through to cheaper funding for lenders.

According to financial information service Moneyfacts, the average two-year fixed mortgage rate stood at 4.83% at the start of the conflict, climbed to a peak of 5.90% a week ago, and has now eased to 5.87%. More lenders are expected to follow recent cuts, potentially bringing the average down further, though not to pre-war levels.

Aaron Strutt of broker Trinity Financial said, “The price cuts are getting more momentum,” adding that the changes would come as a relief to borrowers trying to get on the property ladder. For many first-time buyers, the reprieve cannot come soon enough. Amy Worrell, 26, and her boyfriend Tommy Adeyemi, 30, are buying their first home in Hertfordshire after five years of saving.

In a matter of days, the mortgage rate they expected rose sharply; they now hope it falls back before they complete. “It makes such a big difference,” Worrell said. “We’ve already had to extend our mortgage by five years to 40 years.” She said both are in good jobs and have sacrificed in their 20s, yet buying remains a huge stretch.

“Having a home shouldn’t be a luxury. I worry about how someone working in a supermarket could get a home.” She drives to work as an assistant buildings manager five days a week and is also contending with higher petrol prices caused by the war. Official data from the Office for National Statistics showed that 67% of adults reported their cost of living had increased in March, with fuel and food the key factors.

Fixed mortgage rates do not change until the deal expires — typically after two or five years — leaving many borrowers facing a jump in costs when they refinance. The past six weeks have been particularly tough for those seeking a new deal or a first home loan, after budgeting for lower rates and expectations they might fall further before the war’s economic impact intervened.

Analysts caution that the outlook hinges on geopolitical developments. Adam French of Moneyfacts said the situation in the Middle East was crucial. While the latest reductions offer some respite, brokers and borrowers alike are braced for continued volatility as lenders respond to fast-moving market expectations.