Down-valuations and rate volatility are testing borrower confidence across the market
UK government bond yields surged on Wednesday after US President Donald Trump declared the ceasefire with Iran was over, sending the 10-year gilt yield up 13 basis points to 4.957% – its highest level in nearly a month, as gilt yields soared following the ceasefire's collapse.
Coming just as the UK approaches a change of prime minister, the spike has added fresh strain to a mortgage market already grappling with weak demand. Gilt yields are the interest rate the government pays to borrow money over a set period, with the 10-year yield acting as a key benchmark for the wider cost of borrowing. They feed directly into swap rates – the rates at which lenders hedge their own borrowing costs – which in turn shape the pricing of fixed-rate mortgages.
When gilt yields rise, as they did this week, swap rates typically follow, and lenders often respond by repricing or withdrawing fixed-rate products, as happened during the earlier flare-up in the Iran conflict at the end of February.
Gerard Boon (pictured top), managing director of Boon Brokers, told Mortgage Introducer the mood among clients and brokers has turned firmly pessimistic. "The general mood is one of uncertainty and pessimism from clients and brokers in the industry," he said. "An incoming change of prime minister and ongoing uncertainty surrounding the war in Iran, and its impact on future energy prices, has left a feeling of dread amongst clients and brokers for the future."
Boon pointed to Zoopla data, which he said shows 60% of listed properties are yet to find a buyer since listing in January. He did, however, note one bright spot, with recent interest rate cuts from lenders aimed at reviving demand.
Down-valuations are hitting borrowers hardest
For Boon, the sharpest pain point right now is down-valuations, particularly for clients who borrowed at high loan-to-value (LTV) ratios above 90%. "The prospect of negative equity is now a genuine concern, especially for those borrowers with buy-to-let properties or high-valued properties in the south of England," he said.
Boon cited one recent case where a client's buy-to-let house in multiple occupation (HMO), bought for £360,000, was valued at just £290,000. "Even though this is an extreme scenario, my brokers are encountering down-valuations on a daily basis, which are causing issues for clients looking to remortgage or sell their properties." The pattern echoes wider industry concern over rising down valuations across the remortgage market, and mirrors the growing valuation pressures facing flat owners reported elsewhere this year.
How should brokers advise clients through geopolitical shocks?
Boon is firm that advice shouldn't chase headlines. "Due to the volatility of the mortgage market over recent years, I believe it's unwise to advise products to clients on the basis of external shocks," he said. "Clients should always proceed with the most suitable product for their unique situation."
Where geopolitics does shape his advice is on timing. "We almost always advise clients to reserve their interest rate sooner rather than later, as long as they have the ability to proceed with an alternative product at a later date," Boon explained, noting that a typical six-month mortgage offer window gives clients room to review the market before committing. "We strongly discourage clients from waiting until the mortgage market improves before reserving their deal as the market is unpredictable and could worsen."
What does the rest of 2026 hold for rates and affordability?
The Bank of England held its base rate at 3.75% at its June meeting, with the Monetary Policy Committee split 7–2, and its next decision due on 30 July.
Boon believes the trajectory from here hinges on the Iran conflict. "If the Iran War continues, it's likely that swap rates will continue to rise in correlation with the worsening outlook for the UK economy," he said. "If inflation rises sharply as a result of increased oil prices, which seems likely at this time, the Bank of England may be forced into a position of needing to increase their Base Rate to combat inflation." Conversely, he said a genuine end to the conflict and a return to "normal levels" for oil prices would likely ease swap rates and mortgage pricing after an initial lag.
On affordability, Boon pointed to lenders already loosening their criteria, a trend that has also driven a run of recent buy-to-let and residential rate cuts across the market. "We have recently seen a surge in lenders increasing their maximum lending multiples, such as allowing 6.5 times annual income, in a bid to boost demand in the market," Boon said. "If the UK mortgage market worsens, we will likely see further flexibility from mortgage lenders around affordability over the next few months."
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