According to Moneyfacts, the ‘Trumpflation’ effect of the war in the Middle East could add £1,000 to £1,500 a year to the cost of a flat rate.
The war between the US, Israel and Iran led to a rise in swap rates, which prompted many lenders to do the same increase mortgage interest rates and repricing their range.
According to Moneyfacts, the average two-year fixed mortgage rate has risen from 4.83% at the beginning of March to 5.35% now, the highest level since March 2025.
This has already added around £900 a year to the cost of borrowing £250,000 over 25 years, according to Moneyfacts.
Meanwhile, Moneyfacts’ average fixed-term mortgage rate has risen from 4.95% at the start of March to 5.39% now, the highest since July 2024.
This added approximately £775 per year to the cost of borrowing £250,000 over 25 years.
If the conflict continues to disrupt the global economy and base rates reach 4-4.25%, as markets predict, this could mean average rates on new mortgages stabilizing at around 5.50% to 5.75%.
Given the volatility of events, this is subject to change in either direction, Moneyfacts said.
This could add an extra £1,000 – £1,500 per year to the cost of borrowing £250,000 over 25 years, compared to Moneyfacts’ average mortgage rate of 4.89% at the start of March.
Two- and five-year swaps are now around 1 percentage point higher than at the start of the conflict and at the highest level in more than a year, to now be around 4-4.25%.
These interest rates support mortgage pricing and reflect market expectations of central bank interest rates.
Adam French, head of consumer finance at Moneyfacts, said: “Swap rates, which support mortgage prices, have risen sharply following the decision to keep the base rate at 3.75%, with markets interpreting the Bank of England’s comments as an open door for rate hikes amid fears of Trump inflation.
“With two- and five-year swaps now at their highest levels in more than a year, lenders are once again facing higher funding costs, and this will feed through into mortgage prices.
“Moneyfacts analysis of more than 30 years of historical interest rate data shows that mortgage rates have historically averaged around 1.5 percentage points above base rates. If markets continue to price in one or two rate increases, average new mortgage rates could stabilize at around 5.50% to 5.75%. That would leave borrowers paying £1,000 to £1,500 more per year for a typical £250,000 mortgage compared to with just a few weeks ago.”