The UK’s mortgage landscape has been transformed in a fortnight as lenders react to the “Trumpflation” phenomenon triggered by the Iran conflict. Nearly 700 fixed-rate products have been withdrawn from the market as funding costs for banks skyrocket. Borrowers are now facing a grim new reality where the average two-year fixed mortgage has surpassed 5.25% for the first time since last spring.
Market analysts at Moneyfacts highlight that a typical £250,000 mortgage now costs roughly £65 more per month than it did at the end of February. This sudden “war premium” is the result of rising energy prices stoking inflation expectations globally. As the cost of living rises, the financial markets are betting that central banks will have to keep interest rates “higher for longer” to stabilize the economy.
The timing could not be worse for the nearly two million Britons whose fixed-rate deals expire this year. The prospect of lower monthly payments, which seemed certain just a month ago, has been replaced by the threat of significant payment shocks. Only a handful of deals below 4% remain available, down from nearly 500 at the start of last week, marking a near-total disappearance of low-cost borrowing.
In the City, expectations for a Bank of England rate cut this Thursday have been completely erased. Instead, the consensus has shifted toward a “hold” at 3.75%. Adam French of Moneyfacts warned that if inflation continues to track upward due to energy costs, the Bank might even be forced into a defensive rate increase before the year concludes.
This “Trumpflation” wave, stemming from the U.S.-led military action, has introduced a level of uncertainty not seen in years. Lenders are repricing daily to protect themselves from rapidly rising funding costs, leaving consumers with fewer choices and higher bills. The message to borrowers is clear: the era of falling rates has been abruptly put on hold.