If you’re looking at the mortgage market and wondering what the heck is going on, you’re not alone!
In January, the average rate on a new two-year fixed-rate mortgage was 4.78%, according to the financial data company Moneyfacts. Just two months later, it’s 5.20%. The Bank of England base rate hasn’t changed, so what’s going on? Ah, well it’s all to do with global uncertainty and rising costs caused by the war between Isreal/USA and Iran.
Whilst the base rate of interest is important, it’s not the main driver of fixed mortgage rates. What really moves the market is something called ‘Swap Rates’.
These are essentially the rates lenders pay to borrow money over a fixed period (2 years, 5 years, etc). And right now, those swap rates are rising.
What are swap rates and why do they matter?
Here’s the science bit…
Swap rates are the interest rates that banks charge each other to borrow money (they are not the same as the rates consumers get) but they do affect how much you will pay.
When you borrow money from a mortgage lender they do not actually have that money themselves. They borrow it from someone else at an agreed rate (the swap rate). The money they borrow they use to lend to us as mortgages.
The actual process is quite technical but essentially, the swap rates reflect what the market is predicted to do over the period of the loan. These predictions take into account all manner of things, including inflation, food prices, the general economy, fuel costs and geopolitical events, such as war.
Right now, the market looks uncertain and risky. The war in Iran is driving up fuel prices because it’s taking place in a big oil producing area and the war is restricting shipping that oil around the world. Limited demand of something drives up the price. Fuel is crucial to transportation and we rely on transport to deliver our food, energy, and lots of other things, so they become more expensive too.
All of this risk and uncertainty means the swap rates are going up.
But the Bank of England base rate hasn’t changed?
So, the Bank of England didn’t put the base rate up but there’s a good chance they will at the next review (reviews happen roughly every 6 weeks) depending on what happens with the war. Lenders are anticipating a rise and trying to reduce their risk by putting rates up now. They are looking forward and seeing risk, so they are trying to protect themselves from that risk.
Why are lenders are pulling some mortgage products?
When swap rates move quickly, lenders don’t just tweak pricing. They often pull products altogether. That’s because:
- They need time to reprice deals properly
- They don’t want to be flooded with applications at outdated (lower) rates
- They’re managing risk in a fast-moving market
So what we’re seeing right now is some products disappearing and then reappearing at higher rates. Or, some products are being taken off the market altogether because they are viewed as simply too risky right now in the current conditions.
These changes are a sign of the system adjusting in real time.
Why higher loan-to-value deals are hit hardest
It makes sense that in the eyes of the lenders, borrowers with smaller deposits are riskier than those with larger deposits. The problem is that tends to affect first-time buyers most who often rely more on mortgage products that have a higher loan to value (typically a 10% or less deposit).
And if you are looking for a mortgage with a 5% or less deposit – good luck! We’ve seen more low-deposit deals pulled in the last couple of weeks than any other time since the Liz Truss mini-budget of 2022. And if you can find a lender willing to lend with a 5% deposit, it’s going to cost you an average interest rate of more than 6% on a two-year mortgage.
Assuming you borrow £250,000 over 25 years your repayments are going to cost you about £1200 a year more than they would have at the start of March 2026. It’s no wonder people are worried and frustrated!
How first-time buyers affect the whole market
When first-time buyers are under pressure, the whole housing market tends to slow down. That’s because they’re the ones starting the chain. They need to buy a house, so the people in that house can move house, and then those people can move house, and so on and so on.
When the chain doesn’t start, everything grinds to a halt.
What should you do if you want to move or remortgage soon
This is where it becomes practical. Right now, the biggest mistake is assuming the market will sit still while you decide. It won’t. If you can’t play the very long game (i.e. more than 12 months at least), and sit out the war (which we all hope won’t last too much longer), here’s the practical advice I’m giving to clients now.
Secure a mortgage offer early
Offers typically last up to six months. That gives you a safety net if rates continue to rise.
You can still switch later
If rates improve before completion, you’re not stuck. You can move to a better deal.
Be aware of timing risk
Rates are changing quickly. Waiting even a few weeks could mean a very different set of options.
Don’t panic!
This isn’t about rushing, it’s about getting good advice early on and understanding your position so you can act with confidence.
The bottom line on mortgages in Spring 2026
Mortgage rates are rising because lenders are reacting to what they think is coming, not just what’s happening now.
Swap rates are up. Risk is up. And pricing is adjusting quickly. Which means this isn’t a “wait and see” market. It’s a “be ready and move when you need to” market.
If you want to understand what this means for your situation, my team of expert Mortgage Advisers at IMS Property Group offer a free 15 minute consultation where they’ll talk you through your options clearly, without the jargon.
