Average Mortgage Rate to hit 5pc?

Get ready for much higher mortgage rates as inflation is set to take off. The conflict with Iran is not going to be the short sharp shock like the 12 day war last year, this could be 12 months and that means pain for the West. With oil tankers paralysed in the Strait of Hormuz, oil prices are spiking at around $115 dollars a barrel. This could lead to petrol prices over £2 per litre and energy bills rocketing, unless the government steps in. However, that would cause gilt rates to rise even more than they had in recent days, meaning much higher mortgage and borrowing costs. There’s no other way of avoiding a much more expensive world. The only off ramp is that Trump feels the pain of high oil and collapsing financial markets and negotiated with the new Supreme Leader, but that’s unlikely as he wanted a say in who would be sat at the table.

As conflict seems set to last months rather than days surging energy prices are likely to fuel inflation once again. Despite Andrew Baileys comments just 2 weeks ago that inflation will fall to 2% by May signalling lower interest rates, the Bank of England are going to potentially have to take a cue from Kier Starmer’s playbook and do a U turn and potentially consider raising rates this year. If only we have a reasonable amount of oil and gas reserves not too far from our coast that could bolster tax receipts and deliver to market avoiding conflict areas

Mortgage rates moving back towards 5% shouldn’t surprise anyone who understands how the markets actually work.
Five-year swaps hit a one-year high, lenders repriced, headlines panic, we’ve seen this movie before, and it nearly always starts worse than it finishes.

Yes, inflation is likely to tick up again with energy and fuel prices rising due to global conflict, and that’s exactly why the markets have reacted.
But markets pricing in a rate rise doesn’t mean the Bank of England will actually pull the trigger, They won’t.

The Bank knows the housing market is fragile, confidence is thin, and the last thing they can afford right now is another rate shock hitting millions of homeowners.
Last time rates moved too far too fast, the market nearly seized up overnight.

With Middle East tensions pushing oil toward $118, the UK’s inflation outlook has darkened overnight. This surge isn't just a pump problem; it’s a mortgage problem.

With average rates at 4.91% and five-year swaps hitting year-highs, a jump above 5% this week feels inevitable. Lenders are already repricing, effectively ending the spring "price war." While a base rate hold at 3.75% on March 19th remains the consensus to avoid recession, the market is now pricing in a potential jump later this year to combat "cost-push" inflation.

For savers, the "higher for longer" mantra protects yields, but for borrowers, the window for sub-5% deals is closing.

The 5% rate is a psychological threshold that we expect rates to exceed, potentially wiping out the spring recovery. Whether this shift is permanent, or if the upward trend will continue, depends heavily on developments over the next few weeks.

The current moves can be seen as a "hold and see" strategy. While increasing uncertainty could push prices higher, we are still well below historical peaks. As a nation, we have faced nearly a decade of instability, and we are now quite accustomed to the "keep calm and carry on" approach.