By Justin Whitelock, Founder of Mortgage London (a trading style of City Finance Brokers Limited, authorised and regulated by the Financial Conduct Authority, FCA No. 766295)
Two weeks ago, the UK mortgage market was on a positive trajectory: base rate at 3.75%, lenders competing to cut fixed rates, and the spring housing market building momentum. The US-Israeli strikes on Iran on 28 February changed that picture overnight.
Oil prices have surged above $100 a barrel for the first time since 2022, UK swap rates have spiked, and every major high street lender has either raised mortgage rates or announced imminent increases. The March Bank of England rate cut that markets had priced at high probability is now virtually off the table.
For British expats and foreign nationals watching from overseas, the question is not just what this means for interest rates and mortgage costs. It is what the conflict means for the role of UK property in a portfolio, for the relative stability of UK real estate compared with more volatile markets, and for the long-term case for owning bricks and mortar in a country with rule of law, transparent land registration, and consistent rental demand.
This article is a market commentary based on what I am seeing and hearing as a specialist expat mortgage broker in London. It is not financial advice.
Where Things Stood Before 28 February
The trajectory heading into spring 2026 was encouraging. The Bank of England had cut the base rate four times in 2025, bringing it to 3.75%. Swap rates, the benchmark that lenders use to price fixed-rate mortgages, had fallen to their lowest level since mid-2022. Savills forecast rates moving “closer to 3%” during 2026, and markets were pricing in two to three further cuts before December.
The housing market reflected that optimism. The Halifax House Price Index for February showed prices rising 0.3% to a record average of £301,151, with annual growth at its strongest in four months. Overall mortgage activity remained resilient, and lenders were competing aggressively on fixed rates, with some two-year deals available below 3.55%.
What Changed
The US-Israeli strikes on Iran began on 28 February. Iran retaliated with missile and drone attacks across the Gulf, hitting the UAE, Saudi Arabia, Kuwait, Qatar, Iraq, Bahrain, and Oman. Tanker traffic through the Strait of Hormuz, through which roughly a quarter of global seaborne oil passes, fell by approximately 80%. Qatar suspended all LNG production, removing nearly a fifth of global short-term supply.
Oil initially surged past $100 a barrel before pulling back as the International Energy Agency announced the largest-ever coordinated release of emergency oil reserves, 400 million barrels from 32 member countries, more than double the volume released after Russia’s invasion of Ukraine in 2022. The UK committed 13.5 million barrels to that release.
However, oil quickly rebounded. On 12 March, Brent was trading near $97 per barrel after overnight reports ofexplosive-laden drone boats attacking tankers in Iraqi waters and Iranian sea mines deployed in the Strait of Hormuz. The US Navy has refused requests from shippers for military escorts through the strait, citing the risk of attack.
Any sustained period with oil above $90 per barrel will have inflationary consequences that make interest rate cuts harder to justify. Emergency reserves provide a short-term buffer, but they are finite, and if the conflict persists, the underlying supply disruption through the Strait of Hormuz remains the dominant factor.
The impact on UK mortgage pricing was immediate. Two-year swap rates rose from 3.33% on 27 February to 3.65% within days, the highest level since October. Five-year swaps climbed from 3.50% to 3.80%. HSBC raised fixed rates by up to 25 basis points.
Nationwide followed with increases of up to 25 basis points. NatWest, Coventry Building Society, and Virgin Money all moved. On 9 March, Barclays confirmed rate increases across residential products, with Halifax, Lloyds, TSB, and Santander all announcing further hikes.
As of 11 March, the average two-year fixed rate stands at 5.01% and the average five-year at 5.09%, according to Moneyfacts, both breaching the 5% threshold for the first time in months. In the 48 hours to 11 March, 472 residential mortgage products were withdrawn from the market as lenders rushed to reprice, the largest product withdrawal since the September 2022 mini-Budget.
HSBC repriced for the second time in two weeks, TSB announced increases of up to 50 basis points across all products, and Principality Building Society, Skipton Building Society, and Precise Mortgages all withdrew or repriced fixed rate ranges.
Allan Monks, Chief UK Economist at JPMorgan, put it plainly: the March rate cut is “off the table and April requires a clear calming of geopolitical tensions.” Matthew Ryan, Head of Market Strategy at Ebury, described the shift as “a savage repricing in Bank of England rate expectations.”
Three Scenarios: How Long This Goes On Matters
The economic impact of this conflict depends almost entirely on its duration. The range of credible outcomes is wide, and the difference between a short disruption and a prolonged war is the difference between a temporary blip and a structural shift in the UK rate environment.
Scenario 1: Short Conflict, Quick Resolution
If the conflict is resolved within weeks and energy prices normalise, the economic impact on the UK is likely to be modest. NIESR modelling of a transitory energy shock suggests a negligible effect on GDP, with inflation rising by approximately 0.3 percentage points before falling back. Chatham House concludes that if price spikes prove brief, “most advanced economies should be able to absorb the shock.”
Michael Brown, Research Analyst at Pepperstone, told the Knight Frank Housing Unpacked podcast on 6 March that markets may have overreacted: “I think the market has lurched too far in one direction and will probably slowly but surely lurch back in the other.”
He maintained his view that three rate cuts remain achievable this year, citing weak labour market data and soft economic demand. Nouran Moustafa of Roxton Wealth made a similar point, noting that the current move “looks more like volatility driven by inflation expectations” than the disorderly repricing seen in 2022.
Capital Economics noted that “providing the conflict is relatively short-lived, our base case is that the impact on returns is small.”
There are early signs that some of the initial market shock may be stabilising. On 11 March, two- and five-yearSONIA swap rates fell back by around 10 basis points, and theEIA’s March forecast projects Brent falling to an average of $70 per barrel by Q4 2026 if disruptions prove temporary.
In this scenario, the Bank of England holds at its 19 March meeting, resumes cautious cutting later in 2026, and the UK housing market continues its recovery with only a brief interruption. That said, swap rate volatility is likely to persist for as long as the conflict continues, and the overnight attacks on tankers in the Gulf on 12 March are a reminder that energy markets remain fragile.
Scenario 2: Extended Conflict, Months of Elevated Energy Prices
This is where the consensus sits today. If the conflict persists for several months and energy prices remain elevated, the economic picture becomes materially more challenging.
NIESR’s modelling of a persistent energy shock (oil up 30%, gas up 50% for a year) projects UK inflation rising by 0.7 percentage points, interest rates increasing by 0.8 percentage points, and GDP falling by 0.2% in 2026 and 0.3% in 2027. Bloomberg reported on 9 March that the Bank of England faces the prospect of inflation rebounding to 5%, based on estimates from ING and RSM UK.
JPMorgan’s Monks warned that “the risks are already shifting towards a lengthier pause and larger growth impact.” Justin Moy, Managing Director at EHF Mortgages, was direct: “If the conflict continues beyond Easter, inflation and base rate expectations will be adversely affected, putting the brakes on rate cuts and pushing deals higher.”
Karen Noye, Mortgage Expert at Quilter, noted that “the path lower now looks less assured.” Amanda Bryden, Head of Mortgages at Nationwide, said “markets are now anticipating a more gradual path for interest-rate reductions.”
In this scenario, one rate cut at most materialises in 2026. Mortgage rates remain elevated. The housing recovery pauses. Transaction volumes slow. But this is not a crash: the UK housing market has proven resilient through previous shocks, and the fundamentals of constrained supply, consistent rental demand, and pent-up buyer activity remain intact.
Scenario 3: Wider Escalation, Drawn-Out Regional Conflict
If the conflict widens further, draws in additional state actors, and persists for more than a quarter, the economic consequences become severe. Bank of America has warned that a prolonged Strait of Hormuz disruption could keep Brent above $100 and push European gas above €60 per megawatt hour.
Thomas Pugh, Chief Economist at RSM UK, described the current trajectory as “looking like the start of another inflationary shock cycle.” NIESR’s persistent-shock scenario models interest rates climbing back above 4%.
The Prime Minister warned on 9 March that the conflict could hit “every household and every business” in the UK, and that “the longer this goes on, the more likely the potential for an impact on our economy.” The OBR has warned of a “very significant” hit to the UK economy. Ray Dalio, founder of Bridgewater Associates, had warned in February that the world was “on the brink” of a “capital war” in which money is weaponised. His framework of geopolitical disorder looks prescient.
Yet this scenario contains a paradox for UK property. A wider escalation in the Middle East would likely accelerate an expat return wave. An estimated 300,000 British citizens are across the Gulf region, and more than 170,000 have registered with the FCDO since the conflict began.
Over 32,000 British nationals have already been repatriated, with government-chartered flights operating from Muscat and Dubai, while British Airways confirmed its final repatriation services from Oman on 11 and 12 March.
If a significant proportion of those families return permanently, bringing children out of international schools and re-establishing in the UK, the demand impact on UK rental and purchase markets could be substantial, particularly in London, the South East, and established commuter belt markets.
Tens of thousands of high-earning professionals re-entering the UK housing market simultaneously would put upward pressure on both rents and values in specific locations. Many of these returning expats would be looking to purchase quickly, and those with existing UK buy-to-let investments may seek to convert to residential occupation or expand their holdings.
UK Property as a Safe Haven: The Expat Perspective
For UK expats watching from overseas, the immediate priority is personal safety, family, and job security. But the portfolio question follows closely. In my conversations with clients this week, the theme is consistent: people are reassessing where their money is, and UK residential property is increasingly viewed as the stable anchor in a diversified portfolio.
This is not about chasing returns. UK residential property may not deliver the capital gains of a leveraged off-plan investment in a Gulf emerging market. But right now, stability matters more than upside.
The UK offers rule of law, a transparent Land Registry, consistent rental demand, no structural oversupply at the national level, and a legal framework that has weathered centuries of economic and political disruption.
The supply dynamics reinforce this: England delivered 208,600 net additional dwellings in 2024-25 according to government data, well below the government’s target of 1.5 million homes this Parliament. This structural undersupply, which has persisted for over a decade, underpins long-term property values in a way that newer, rapidly expanding markets may not replicate.
For expats with exposure to Gulf real estate, the risk profile has changed materially. Moody’s projects approximately 180,000 new residential units coming online in Dubai alone between 2026 and 2028.
Better Homes and Khaleej Times report 200,000 to 300,000 planned units by 2028. In 2025, approximately 65% of Dubai property transactions were off-plan. If tenants leave, who services the mortgage? If investor confidence drops, leveraged off-plan positions become exposed.
Knight Frank notes that Dubai’s market was already “transitioning from rapid expansion to a more sustainable phase” before the conflict. For expats in the UAE, Qatar, and Saudi Arabia, these questions are no longer hypothetical.
Currency movements may also be a factor, though the direction is uncertain. Periods of geopolitical stress can weaken sterling, which would make UK property relatively more affordable for overseas buyers earning in dollars or dollar-pegged currencies.
Equally, a flight to the US dollar could strengthen it against both sterling and Gulf currencies. The outcome depends on the nature and duration of the conflict, and currency movements are inherently unpredictable. What is clear is that exchange rate volatility adds another variable for expats weighing the timing of a UK property purchase.
This applies beyond the Gulf. British expats in Singapore, Hong Kong, Switzerland, Australia, the USA, and across Europe are watching the same headlines and asking the same questions about diversification and long-term positioning.
The appeal of UK property for expats as a stable asset class is not limited to those directly affected by the conflict; it extends to any globally mobile professional who is reassessing risk across their portfolio.
What This Means for UK Mortgages Right Now
Every major UK lender has now raised or announced mortgage rate increases in direct response to the conflict. The window of falling rates has closed, at least temporarily.
The pace of repricing has accelerated. Moneyfacts data from 11 March shows the average two-year fixed rate at 5.01% and the five-year at 5.09%, up from 4.84% and 4.96% on 6 March. Individual increases from major lenders have ranged from 10 to 50 basis points. However, the context matters.
The 472 mortgage products withdrawn in the 48 hours to 11 March represented around 6.5% of the total residential market. By comparison, the September 2022 mini-Budget triggered the withdrawal of 935 products in a single day, more than 25% of the market.
This is a repricing, not a collapse, and many of those withdrawn products are expected to return within days as lenders adjust to the new rate environment. That said, with an estimated 1.8 million UK mortgages due to expire in 2026, the timing is significant: many households who locked in deals during the low-rate era now face renewal in a more volatile environment than anyone anticipated a fortnight ago.
David Hollingworth, Associate Director at L&C Mortgages, observed: “Once we enter this cycle of lenders adjusting their rates, we know that it almost invariably results in others following suit.” But Liam O’Donnell, fund manager at Artemis, noted that “the market believes the central banks are alert to the inflation threat” and that the impact is “unlikely to be as dramatic as the inflationary shock witnessed following Russia’s invasion of Ukraine in 2022.”
For existing mortgage holders approaching the end of a fixed-rate term, the calculus has shifted. Before the conflict, there was a reasonable case for waiting: rates were expected to fall further, and a better deal might emerge in the coming months.
That logic is harder to sustain when swap rates have moved over 30 basis points in ten days and lenders are repricing weekly. Most lenders allow borrowers to secure a new rate up to six months before their current deal expires, providing certainty without commitment if a better product becomes available before completion.
The RICS residential market survey published on 12 March, covering 23 February to 9 March and straddling the conflict’s start, showed near-term house price expectations dropping to a net balance of -18 from -6, with the headline price gauge falling to -12.
This reflects the cooling effect of uncertainty on domestic buyer sentiment. For expats and foreign nationals, however, the picture is different. Clients considering a UK purchase or remortgage are making portfolio decisions across a longer time horizon, and often from markets where the geopolitical risk has been repriced far more sharply. Products remain available and lenders are still actively lending. Deposits, income strength, and currency stability continue to determine access.
The Bank of England’s next Monetary Policy Committee meeting on 19 March will be the first since the conflict began, and a hold is now virtually certain. Markets have moved beyond debating when the next cut will come.
Some analysts now see one cut at most in 2026, while Deutsche Bank has warned that inflation could approach 4% by year end if the conflict persists, andNIESR has modelled interest rates climbing to 4.5% in a scenario where energy costs remain elevated for a year.
Beyond the energy shock, the MPC will be assessing the full range of economic indicators, including the latest inflation data, UK GDP figures, employment numbers, and wage growth, all of which will inform whether the next move is a cut, a hold, or, in a prolonged conflict scenario, a rise.
UK households are partially shielded in the short term by the energy price cap, which remains in place until June, though rising oil prices are already being felt at the pump and in wholesale markets. For those with the means and the intention, locking in a rate now provides certainty in an environment where the direction of travel is genuinely uncertain.
Important Considerations
This article is a market commentary based on publicly available data and the author’s professional experience. It is not financial advice and does not constitute a personal recommendation. Mortgage rates, lending criteria, and market conditions can change at any time. The economic scenarios outlined above reflect a range of credible outcomes, not predictions. Tax treatment depends on individual circumstances and may change in the future.
Working with a specialist expat mortgage broker can help navigate the current environment and identify lenders suited to specific circumstances. Contact Mortgage London for a free, no-obligation consultation to discuss your situation.
