Mortgage market faces double uncertainty as pressures mount

The UK mortgage market entered the second half of 2026 carrying two distinct sources of uncertainty, one rooted in the Middle East conflict that derailed rate expectations in the spring, the other in a domestic political reset that has left borrowers and brokers waiting to see what a new government will mean for household finances.

David Hollingworth (pictured top), associate director at L&C Mortgages, told Mortgage Introducer borrowers are struggling to make informed decisions in an environment where too many variables remain unresolved.

"I think some stability would be a massive help, and until we get that, it will be very hard for customers to see the wood for the trees," he said. "You can't really predict what may or may not happen to interest rates until we get a more prolonged period of stability and that geopolitical situation looks to be more settled, which we're far from at the moment."

That view reflects a market that has endured a turbulent year. When the Iran conflict escalated in March, swap rates moved sharply higher and lenders repriced at speed, with two and five-year fixed rates peaking at 5.9% and 5.78% respectively in April, according to Moneyfacts. The average mortgage rate rose to 4.97% in the second quarter, up from 4.31% in the first quarter, according to Stonebridge's Mortgage Market Index, which attributed the increase to geopolitical tensions in the Middle East. Mortgage applications fell 18.5% year-on-year in Q2, with remortgages down 20.8%.

What does a new prime minister mean for borrowers?

Layered on top of the geopolitical picture is a change of government that Hollingworth said adds another layer of uncertainty borrowers must navigate. Andy Burnham became prime minister in July, succeeding Keir Starmer, and has confirmed that stamp duty will not change at the Autumn Budget. Angela Rayner has returned as Housing Secretary, and a 10-year plan for Britain is expected later in the year.

Hollingworth acknowledged the political shift is adding to an already complex backdrop. "Layered on top of that, you've also got the changing political situation domestically," he said. "It won't be long before all eyes will be on the next budget for a new chancellor. There are lots of question marks, which we won't be able to give clear answers to. But hopefully some more stability will come and we'll be able to start talking more positively about the future direction of rates again, like we were at the beginning of this year."

That optimism at the start of 2026 – when two Bank of England base rate cuts were widely forecast before the Iran conflict reshaped expectations – now feels distant. The Bank of England held the base rate at 3.75% on 30 July, with financial markets at the start of July expecting rates to hold for the rest of the year. A HomeOwners Alliance survey found that around a quarter of Brits expect rates to rise, a similar proportion think they will fall, while 28% expect them to stay the same and 24% are unsure.

Why borrower confusion is a broker's moment

That level of uncertainty among borrowers points to a significant role for brokers in the months ahead. According to Stonebridge's Mortgage Market Index, mortgage applications fell 18.5% year-on-year in the second quarter, with remortgages down 20.8% – a period Rob Clifford, chief executive of Stonebridge, described as a "stick-or-twist moment" for those thinking of moving, buying or remortgaging.

For brokers working through a remortgage pipeline that remains substantial, with UK Finance projecting approximately 1.8 million fixed-rate deals will expire in 2026, the task is helping clients act despite the noise rather than waiting for a clarity that may not arrive. Data tracking softening mortgage demand amid rate volatility and geopolitical uncertainty suggests that challenge is only deepening as the year progresses.

Hollingworth said that sustained concern among borrowers, while challenging, represents a clear opportunity. "I think people are going to be concerned for the foreseeable," he said. "But actually, if we look at that from a more positive point of view, for brokers, that's an opportunity for them to stay in touch with their customers and help them through that, which is what we're all here for."