Market turmoil pushes average two-year fixed mortgage rate above five-year rate

The inversion of fixed mortgage rates reflects the ongoing volatility and uncertainty in the market caused by the conflict in the Middle East.

The mortgage market continues to feel the effects of the Iran war, as lenders adjust to the changing conditions by raising rates and withdrawing deals.

Fixed mortgage rates have rocketed since the start of the conflict and, underlining the volatility in the market, today (25 March 2026) saw the average two-year fixed mortgage rate jump above the average five-year fixed mortgage rate, according to latest Moneyfacts’ data.

The average two-year fixed mortgage now stands at 5.56% (up from 4.83% at the start of this month), while the typical rate charged by a five-year fixed deal is now at 5.54% (compared to 4.95% at the start of March).

“In a traditional market, the average two-year fixed deal would be lower than the five-year, but the unrest in the Middle East is causing concerns over the path of interest rate setting, with inflation expected to spike in the months ahead,” Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, explained.

“Swap rates have been inverted for a few days now,” she added, which meant that it was only a matter of time before this was reflected in mortgage pricing.

While some may hope this will be a “temporary blip”, Springall points out that it will depend on how long the current volatility continues and how the markets expect the Bank of England base rate to change.

The average two-year fixed mortgage rate soared above the average five-year fixed rate after the fall-out from the September 2022 mini-Budget. This inversion remained for around three years, as it wasn’t until August 2025 that the average two-year fixed rate finally dropped below the average five-year rate, signalling a return to a more “traditional” market.

More than 1,500 mortgage deals disappear

In addition to rising rates, lenders have withdrawn more than 1,500 mortgage products since 9 March 2026, which is roughly equivalent to a fifth of the overall market, Moneyfacts’ data revealed. This means borrowers now have fewer than 6,000 mortgages to choose from.

On 21 March alone, product choice fell by 448 deals – the highest amount in a single day since the aftermath of the September 2022 mini-Budget.

Even though product numbers showed a slight recovery between 24 and 25 March, Springall notes that, when products return to the market, “they will likely be at inflated rates to catch up with the current state of play”.

Shock for first-time buyers

First-time buyers have been hit particularly hard by the recent volatility, as the average two-year fixed rate on deals at 95% loan-to-value (LTV) has soared above 6%.

Springall calculates that, for those taking out a two-year fix now compared to the start of March, this hike in rates could add around £1,200 per year to their mortgage repayments. This is based on a mortgage of £250,000 with a 25-year term, with a two-year fixed interest rate of 6.10% vs. 5.45%.

In a further blow to those looking to get on the property ladder, more than 200 deals at the 95% LTV tier have been withdrawn since 6 March 2026. On Saturday 21 March alone, 52 deals were pulled, marking the biggest daily fall in product numbers at this tier since the mini-Budget.

Will mortgage rates continue to rise?

There are many factors that influence mortgage pricing, but the Bank of England base rate and swap market perhaps have the most sway.

As recently as last month, there were expectations that the Bank of England would cut the base rate this year which might have helped to push down borrowing costs. However, these have since given way to the possibility of interest rate hikes – particularly if disruption to global oil supplies causes UK inflation to rise.

“Mortgage rates have historically averaged around 1.5 percentage points above base rate. If markets continue to price in one or two rate rises, this could see average new mortgage rates stabilise at around 5.50% to 5.75%,” explained French, referring to recent analysis of Moneyfacts data. Based on these figures, borrowers could end up paying between £1,000 and £1,500 more per year on a typical £250,000 mortgage.

“While a quicker resolution to the conflict could ease some of [the] pressure on rates, the reality is that a more volatile world is a more expensive world,” said French. “Even though the most competitive deals will remain below average, anyone looking to buy or remortgage this year needs to prepare for higher costs than previously expected,” he added.

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