UK House Prices Stagnate as Mortgage Costs Stay Above Pre-Iran War Levels

Q: With a fragile Mideast ceasefire in place, are low UK mortgage rates now a thing of the past?

Yes — for now, the ultra-low UK mortgage rates seen before the Middle East shock look gone, even if the ceasefire has reduced the immediate pressure. The ceasefire and the reopening of the Strait of Hormuz have helped calm markets. Oil and gas prices have fallen from their peaks, swap rates have eased, and several major lenders have trimmed fixed-rate deals. That has brought some relief after mortgage pricing jumped sharply during the conflict. But the reset is limited. Average new UK mortgage rates are still far above pre-war levels: around 5.59% for a two-year fix and 5.57% for a five-year fix in mid-June, versus below 5% in March and far below the sub-3% loans many borrowers locked in earlier. Even the best five-year fixes remain materially higher than before the conflict. The main reason is that the ceasefire is fragile and inflation risks have not disappeared. The war pushed up energy, shipping, insurance and input costs, and the Bank of England says some of that inflation is still “in the pipeline.” UK CPI slowed to 2.8% in May, but the Bank still sees inflation rising later this year. That makes policymakers cautious about cutting rates quickly. So the likely outlook is not a return to the old era of cheap mortgages, but a period of somewhat lower rates than the recent peak, yet still structurally higher than borrowers became used to before the conflict. For households, the key issue is affordability, not waiting for a rapid return to very low deals.

3 articles · Updated · Bloomberg · Jul 1

UK house prices were flat, with the housing market still capped by borrowing costs that remain elevated despite recent mortgage-rate easing.
Mortgage relief has been limited because rates are still well above levels seen before the Iran war, leaving affordability strained for buyers.
That has kept demand subdued and prevented cheaper loans from translating into a broader pickup in home-price growth.