Mortgage market rocked by economic impact of Iran War

Since the first shots were fired at the tail end of February, the 2026 Iran War has already had a withering impact on the global economy. Swap Rates are rapidly climbing, oil supply routes have been disrupted, and central banks are preparing for a mighty inflation shock. 

In response to all this uncertainty, multiple mortgage lenders have withdrawn products – in some cases, entire buy to let ranges have been taken down. More will undoubtedly follow suit.

For landlords looking to mortgage or remortgage, the message is clear – there is no time left to delay. This is shaping up to be the biggest market shock since Liz Truss’s 2022 mini-budget, so it is vital to secure a deal now, before rates continue to rise higher and higher. 

Strained alliances 

The US and Israel made the first strikes against Iran. During ‘Operation Epic Fury’, as the US military called it, Iran’s Supreme Leader Ali Khamenei was assassinated, prompting a mixture of support and condemnation from the international community.

Donald Trump called upon many allied nations to join in military operations against Iran and the Lebanese paramilitary group Hezbollah, with many quickly lending their intelligence, troops and bases.

However, the UK was notably slow to respond, which has increased tensions with the US. The HMS Dragonhas been mobilised to protect a UK military base in Cyprus, which was supposedly attacked by a retaliatory Lebanese missile. 

Sir Keir Starmer has been vocally opposed to the conflict on legal and ethical grounds. Meanwhile, Trump made headlines for insinuating that Starmer was “not Winston Churchill” in terms of wartime leadership.

Despite being ideologically opposed on almost every level, Trump and Starmer have maintained a courteous relationship, though they have clashed before. Notably, Starmer supported Greenland’s sovereignty when Trump was aiming to annex the Arctic region as the 51st US state.

As well as the Iran War, the UK has been caught in the crossfire of the international trade war between the US and other global superpowers. Previously, we have reported on Trump’s tariffs, and the UK does not seem to be exempted from these.

If the “special relationship” remains strained, it is plausible that Trump may continue to make things difficult for the UK and other so-called “uncooperative” allies.

Inflation shock

In the wake of the war’s outbreak, central banks around the world prepared for the high probability of a major inflation shock, meaning that prices for everyday goods are expected to increase.

For many in the UK, skyrocketing fuel prices are another major concern. A large portion of the world’s oil is transported through the Strait of Hormuz, and movement of oil tankers through this critical waterway has been disrupted by the war.

The Bank of England (BoE) leaders have focused on bringing inflation down as much as possible by making strategic cuts to the Base Rate every few months.

This strategy has been giving mixed results, since changes to interest rates can have destabilising effects on inflation if they are not implemented at the right times. In February 2025, inflation increased slightly, against the BoE’s wishes. 

Swap Rates

Swap Rates reflect expectations the money markets have for future interest rates. Lenders primarily use these to determine their pricing.

After the economic impacts of the war became apparent, Swap Rates started to increase – more sharply by the day.
 
Since Swap Rates act as a great predictor of the Monetary Policy Committee’s (MPC) interest rate decisions, some economists are expecting the Base Rate to rise for the first time since August 2023. 

Importance of renewing

Back when Liz Truss and Kwasi Kwarteng upended the UK economy with their September 2022 mini-budget, many property investors were caught flat-footed by the sudden interest rate spikes, which persisted for the following year. During that period, cheap mortgage rates were rare to come by. 

Although it has not been caused by UK fiscal policy, the Iran War is already presenting an economic crisis of a similar scale to the mini-budget fallout.

Interest rates were temporarily reduced during the COVID-19 pandemic to nurture the economy, but this was never meant to be a permanent measure. Rates are unlikely to drop that low again in the foreseeable future.

It is vital to learn from the past – be prepared, and be proactive. If you are a landlord with an initial rate period that is due to end in six months or more, look into securing a new rate as soon as possible. 

Products will continue to vanish from lenders’ listings. If you rest on your laurels, you could be trapped in a position of paying more than you need to over the next two to five years.

Our advisors will be ready to find the most competitive rates that remain on the market, tailored to your personal criteria. Contact us today.