Major UK mortgage update issued as Iran war hammers rates

Soaring energy prices triggered by the war in Iran have torpedoed hopes of an interest rate cut next week, economists warned last night, as lenders pulled hundreds of mortgage deals and slammed fixed rates higher. The Bank of England's Monetary Policy Committee is now almost certain to hold the base rate at 3.75% when it meets on Thursday, ditching months of guidance pointing to an imminent easing.

The dramatic pivot comes after oil and gas prices spiked on Middle East conflict, threatening to push UK inflation higher for longer. Edward Allenby, senior UK economist at Oxford Economics, said: "The UK inflation outlook was starting to brighten, but the conflict in the Middle East has thrown a spanner in the works.

Against this backdrop, it's almost certain the MPC will keep bank rate unchanged at 3.75% at the March meeting."

Thomas Pugh, chief economist at RSM UK, said: "It was only two weeks ago that a March rate cut looked like a dead cert. A cut clearly makes no sense now. The most sensible thing for the Bank of England to do is wait for more clarity."

The Office for Budget Responsibility warned earlier this week that a persistent energy price spike could add a full percentage point to inflation this year.

The Bank, led by Governor Andrew Bailey, had hoped CPI would drop close to its 2% target by April, but experts now fear household fuel and electricity bills will surge later in 2026.

The fallout has already battered the mortgage market. Financial data firm Moneyfacts reported yesterday that at least 530 homeowner deals - around 7.5% of the total available - have vanished since Monday. Average fixed rates have topped 5% for some borrowers, with lenders reacting to a sharp rise in swap rates used to price loans.

The website described the past week as the most turbulent since the chaotic aftermath of the September 2022 mini-budget. Britain's biggest banks and dozens of smaller lenders have hiked rates in unison.

Despite the mortgage mayhem, the housing market has opened the spring selling season on a surprisingly steady footing. Rightmove said average asking prices for newly listed homes jumped £3,023, or 0.8%, in March to £371,042. The rise is typical for the time of year and in line with the long-term average, though below the gains seen in the past two springs.

Colleen Babcock, property expert at Rightmove, said: "March has brought a typical seasonal lift in prices, and 'steady rather than strong' is how I'd describe the start of this year's spring market. Being competitive on price from the outset is critical. Relying on later reductions is a much tougher strategy."

Market activity remains resilient so far. The number of sales agreed in March is just 2% behind last year's strong levels and 5% ahead of 2024. Northern regions are outperforming the south, with the North West up 2.6% annually while London prices have fallen 2.1%. Smaller homes have seen modest annual dips, potentially offering first-time buyers a window of opportunity.

Matt Smith, Rightmove's mortgage expert, said: "A March bank rate cut is unfortunately no longer on the cards and any further base rate cuts this year look uncertain."

Jeremy Leaf, estate agent in north London, said: "Most are adopting a wait-and-see stance for now at least. We have seen no price reductions or withdrawals from agreed sales in our offices other than for property-related reasons."

Nathan Emerson, chief executive of Propertymark, said: "Housing continues to play a driving role in the UK economy. Across the last twelve months, we have seen a near 15% drop in the magnitude of fall-throughs reported per member branch."

Broader figures released yesterday painted a mixed picture. Savills estimated total UK housing costs reached £226 billion in 2025, up £8 billion on the previous year. Lucian Cook, head of residential research at Savills, said: "In 2025, the burden of higher mortgage costs has been felt mainly by households coming off longer-term fixed-rate deals."

Hamptons added that the private rental sector is still feeling the effects of the 2016 stamp-duty surcharge on second homes, which tilted the market away from investors and slowed apartment building. Their research suggests the tax has resulted in 2.2 million "missing" rental homes over the last decade.

With the Bank's decision due on Thursday, mortgage rates and homebuyers now face weeks of uncertainty as the Iran conflict continues to batter the UK economy. Lenders and borrowers alike are braced for a longer wait for relief.