UK mortgage market braces for fresh uncertainty as US and Iran resume hostilities
UK government bond yields jumped on Wednesday after US president Donald Trump announced the US-Iran ceasefire had collapsed, with the 10-year gilt yield rising to its highest level for nearly a month.
That yield, which strongly influences UK swap rates – and by extension, fixed-rate mortgages – surged by 13 basis points, hitting a high of 4.957% as the resumption of hostilities between the US and Iran stirred fears that another spell of economic volatility could be underway.
Trump’s declaration that “the deal is over” arrived after the two sides traded strikes, ending a fragile truce and sending the price of oil sharply higher.
That could stoke further inflation concerns and potentially push central banks – including the Bank of England – into interest rate hikes if higher oil prices put pressure on the overall consumer price index (CPI).
The outbreak of conflict in Iran at the end of February wreaked havoc on the UK mortgage market, with lenders withdrawing products and fixed rates rising as the economy and financial markets reeled.
How the latest crisis emerged
Trump appeared to pour cold water on the chance of fresh negotiations between the two sides in comments at the ongoing NATO summit in Turkey. “I don’t want to deal with them anymore,” he said.
Iranian strikes on three commercial vessels transiting the Strait of Hormuz on Tuesday prompted the US to revoke a waiver that had allowed Iran to sell its oil, followed by retaliatory strikes on more than 80 Iranian targets overnight.
Iran responded with strikes on Bahrain and Kuwait, both hosts to US military bases, and tanker traffic through the Strait – a route that carries roughly a fifth of the world’s oil – has now all but ground to a halt.
Why the latest developments could be bad news for mortgage rates
After a brief period of easing tensions between Washington and Tehran, markets are now pricing in a risk premium again. That’s had an impact well beyond the gilt market: US stocks fell broadly on Wednesday, with the Dow down around 1% shortly after the opening bell, while government bond yields also ticked higher in the US.
That pattern forced UK lenders to withdraw and reprice fixed-rate products at pace back in February. For now, it remains to be seen whether a similar scramble from lenders could occur in the days ahead.
Speculation had already grown about potential rate hikes by the Bank of England in the coming months, and the latest jump in oil prices could put fresh pressure on decisionmakers to act.
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