SUB-4% fixed rate mortgages are disappearing as the Iran war has “lenders running for cover” with experts warning “these higher rates could become permanent” if the conflict continues until the summer.
The US and Israel’s war with Iran shows no sign of easing after three weeks of strikes with Iran hitting back by targeting the critical passage of the Strait of Hormuz that carries oil through the Middle East.
Experts fear that rising global oil prices will lead to inflation going up, with the Bank of England now expected to hold its base rate on Thursday.
This has led to the pool of lenders offering a sub-4% fixed rate deal taking a significant blow. All of the biggest banks, namely Barclays, HSBC, Lloyds Bank, NatWest and Santander, have increased rates since the start of March, according to MoneyFacts.
These lenders no longer offer sub-4% fixed deals, which were available last week.
Across the market, the last time the lowest two and five-year fixed rates were priced above 4% was over a year ago, in February 2025, based on first of month data.
Year-on-year average mortgage rates across the two, five and 10-year fixed sector have fallen, but recent increases have pushed the average two and five-year rates above 5%.
The Moneyfacts Average Mortgage Rate has fallen over the last 12 months, from 5.33%. Last month the rate was 4.90%, but it has recently breached 5%.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: “Borrowers looking for the lowest fixed rates will be disappointed to see the demise of sub-4% mortgages, but they are not sustainable with swap rates increasing. Lenders look at margins very carefully, so it would be unwise to price their deals too low, if the expectations are for interest rates to rise, even if over the short-term.
“The mortgage market needs stability, and really, borrowing costs are lower than in recent years, and we have had sub-4% deals on the shelves for over a year. While many of the biggest lenders no longer offer a sub-4% fixed deal, it is a cautious decision. Mortgage rates are rising due to global pressures, not UK fiscal policy, so while not ideal, rate increases are not mirroring the ‘mini-Budget’ fiasco in 2022.”
Lenders are running for cover
Richard Davidson, Mortgage Advisor at onlinemortgageadvisor.co.uk, said the world is now more unpredictable, and that has led to higher mortgage rates.
He added: “Mortgage rates right now have an uncertainty premium built in, lenders are erring on the side of caution, and some may have priced higher than the market ultimately justifies.
“The real issue for buyers isn’t just the rate, it’s the unpredictability. Sub-5% rates would be welcome, but what the market actually needs is stability, and settling around 5% would still represent a positive outcome as buyers will know where they are.”
Patricia Ogunfeibo, Founder & non-practicing Solicitor at London-based tenant2owner, said there will be less competition for buyers.
She added: “Disappearing lower interest rates can be good news for some. The winners here? Buyers of flats and properties in areas where landlords are dumping ex-rentals. When rates rise, buyers tend to panic but those who understand how the numbers work can turn that panic into their advantage because there is less competition and more negotiating power.
“They look for motivated sellers who drop their prices. A 5% discount on a £200,000 home saves £10,000 off the mortgage balance permanently. 10%? That’s £20,000, and this is possible with the right guidance and knowledge. Meanwhile, someone who bought at a lower rate but a higher price would likely owe more after five years.
“Rates can always be refinanced, but the price paid is locked in forever. Knowledge can therefore be a very good deposit top-up, as higher rates now can be very good news for savvy first time buyers who look forward to rate withdrawals like these.”
Mortgage rates right now have an uncertainty premium built in
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth Ltd, said it showed how quickly borrowers should lock in rates.
He added: “The speed at which these rates have disappeared shows that nothing is certain in the mortgage world and it pays to act swiftly. Borrowers who dither are often the ones who miss out.
“Using a broker is useful as they use software to compare live deals and know the criteria to get applications approved and away quicker to help secure the keenest rates. The turbulence in the mortgage market mirrors the mayhem occuring in the Middle East, with lenders running for cover.”
Sarah Fox-Clinch, Director at Fox Davidson, said she isn’t surprised by the lack of sub-4% mortgages.
She added: “It’s a sad time for those property owners and property purchasers with a large deposit. Psychologically, owners like to see a rate starting with as low a number as possible. We have had a year or so of rates starting with a 3 for those with a 40% or even a 25% deposit, however, with current pressure on interest rates these are fast disappearing.
“This isn’t a surprise as the mortgage market reacts quickly to fluctuations in the money markets. Mortgage lenders are competitive beings. They want to lend and will either entice business by being rate driven, or being criteria driven.
“When pricing becomes more difficult for them we may see movement in lending criteria. If the unrest in the Middle East subsides and the pressure on oil prices eases we may well see sub 4% rates back for those who have a large deposit.”
These higher rates could be more permanent
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said it is a reality check for the housing market.
She added: “The disappearing sub-4% deals are a reality check more than anything else. The market got very comfortable, very quickly, and lenders were cutting hard as if stability was guaranteed. It was not. What we are seeing now is how fast that optimism can unwind when markets get nervous.
“For borrowers, the bigger issue is not just the loss of a headline rate starting with a 3, it is the speed of the repricing and the panic that comes with it. My view is that if market uncertainty continues, this trend probably does continue in the short-term and we may not see mainstream sub-4% fixed rates return in any meaningful way for a while.
“They may pop back up in pockets if sentiment improves, but right now lenders are in defensive mode. This just shows again how fragile mortgage pricing can be. Rates do not drift up politely, they can jump, products can vanish, and borrowers who wait too long usually pay for it.”
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said he hopes that rates will come down again if the Iran war is resolved soon.
He added: “I think we all hope this is a short-term issue more than anything else. It feels unfair to compare where we are today with the Middle East conflict with the UK economy 12 months ago.
“Whilst rates have quickly increased, assuming a settlement to the conflict will come soon, mortgage rates should quickly return to the levels they were at just a few weeks ago. The loss of those sub-4% deals will hopefully be nothing more than temporary, should the conflict stretch out to the summer then these higher rates could be more permanent.”
Photo by Tasha Kostyuk on Unsplash.
