Mortgage rates show signs of falling after Iran war peak

Going into 2026, there was high optimism for potential homebuyers and people looking to remortgage that interest rates would fall throughout the year. However, when the Iran war started on 28 February, Iran blocked the Strait of Hormuz. This quickly led to a spike in global energy prices and UK inflation climbed as a result.

The Office of National Statistics revealed new data that 67%¹ of adults reported an increase in their cost of living in March, driven by fuel and food price hikes.

When the conflict started, the average rate for a two-year fixed mortgage deal was 4.83% and following the start of the war, the rate increased up to 5.90%¹. Mortgage lenders applied a cautious approach, as there was great uncertainty as to whether there would be any imminent resolution to the war or the situation with the Strait of Hormuz.

Lenders also removed around 1,000 mortgage deals from the market following the start of the Iran war.

Optimism that mortgage rates have peaked

The temporary ceasefire and the reported reopening of the Strait of Hormuz have helped to ease fears of runaway inflation, and several major lenders have lowered rates on new fixed mortgage deals.

The average rate for a two-year fixed deal dropped to 5.87%¹, with some experts showing optimism that the rates have peaked.

Adam French, from Moneyfacts, shared his insights:

"Markets have welcomed the reported reopening of the Strait of Hormuz. This strengthens the view that mortgage pricing may have peaked. However, recent volatility shows how quickly pricing can shift again."

Jo Jingree, from advice firm Mortgage Confidence, shared some guidance for those who have recently secured a new mortgage deal in the last few weeks, urging them to check whether they can improve it.

She also highlighted that there is a risk that the Iran conflict could cause further volatility:

"For anyone who has been waiting for reductions, now might be the time to secure a rate. Although there is a chance rate reductions will continue, the situation is far from stable and waiting further could be a risk."

On 30 April 2026, the Bank of England’s Monetary Policy Committee voted to freeze the central interest rate at 3.75%. The vote went 8-1, with one member voting for an increase to 4%.

This decision reflects the ongoing unpredictability of events in the Middle East. Mortgage borrowers are being encouraged to consider their affordability in the event that rates do start to increase again.

While the slight decrease in mortgage rates will be positive news for many people looking to buy their first home, pre-war rate levels are unlikely to be available in the near future.

Sources

1 https://www.bbc.co.uk/news/articles/cwyx2q86lgpo

All the information in this article is correct as of the date of publishing. The opinions expressed in this publication are those of the authors Euxton Mortgage Market. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

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May 2026