Homeowners hammered by £2,000 jump in mortgage costs as they pay price of Donald Trump's war

The cost of a typical fixed rate mortgage has increased by around £2,000 so far this year in a punishing squeeze on family finances.

Figures from Moneyfacts show the average two-year fixed rate now stands at 5.96 per cent – up from 4.83 per cent at the start of 2026.

Five-year rates have done up from 4.91 per cent to 5.99 per cent.

That has added around £2,000 a year to the cost of a typical £250,000 mortgage – taking the annual bill to close to £20,000.

Those on a two-year deal are paying an extra £168 a month or £2,016 more a year while five-year deals are £161 a month or £1,932 a year more expensive.

The figures underline how British households are paying the price of Donald Trump’s war in the Middle East and Labour’s inflationary tax hikes on cost increases on business. 

Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said: ‘Mortgage rates continue to be a cause of pain for many borrowers as they could be facing paying thousands of pounds extra a year compared to the start of January.’ 

Families have been hit by the soaring cost of mortgages

A report by Lloyds Banking Group last week showed house prices fell at the steepest rate in more than three years in October as high mortgage rates put off buyers.

Average property prices dropped by 1.2 per cent in the year to October 2026, marking the steepest decline since October 2023, the lender said.

Sarah Coles, head of personal finance at AJ Bell, said ‘the market has succumbed to gravity’ as higher borrowing costs take their toll.

Warning that fixed rates could rise again, she added: ‘Things are unlikely to pick up anytime soon. Average rates are still painfully close to 6 per cent over two and five years, and every time we get more bad news about the international picture, it threatens to push these rates even higher.’

Before the Iran conflict erupted at the of February, the Bank of England was expected to cut interest rates this year with some believing fixed mortgage deals could fall to close to 3 per cent.

Instead, they stand close to 6 per cent as disruption to oil supplies – particularly through the Strait of Hormuz – sent energy prices soaring.

The subsequent surge in inflation has pushed up borrowing costs around the world and the Bank of England last week raised official interest rates for the first time since Augusts 2023 – from 3.75 per cent to 4 per cent.

Governor Andrew Bailey left the door open to another hike before Christmas amid fears inflation could soar past 6 per cent.

It has already climbed to 3.5 per cent, an 11-month high, and well above the Bank's 2 per cent target.

Angela Kerr, director at the Homeowners Alliance, said: ‘Experts had predicted that the brighter rate outlook forecast prior to the Middle East conflict would see more base rate cuts in 2026.

‘Had this happened, it was predicted that fixed mortgage rates could fall and there was even some speculation fixed mortgage rates close to 3 per cent may have been a reality. However, the recent unrest has ripped up those forecasts.’

A string of tax hikes on business under Labour – including the £25billion increase in national insurance contributions – alongside inflation-busting rises in the minimum wage have also fuelled inflation as firms pass on higher costs to customers with higher prices.

According to bets on financial markets, the Bank could raise interest rates to as high as 4.5 per cent or 4.75 per cent by the end of next year, pushing mortgage costs higher still.

Sarah Tucker, a mortgage expert at the Homeowners Alliance, said: ‘While future Bank rate rises are expected before summer next year, no one knows exactly how many increases there will be or how quickly they might happen. 

'The one silver lining is that the Budget hasn’t caused the market disruption some feared, which is welcome.’

How to find a new mortgage

Mortgage rates have jumped as conflict with Iran has driven up inflation expectations and dashed hopes of interest rate cuts.

If you need a mortgage because you are buying a home, or your current fixed rate deal is due to end, you should explore your options as soon as possible.  

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with expert mortgage advice.

Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Or use L&C’s online Mortgage Finder to search thousands of deals from more than 90 different lenders to discover the best deal for you.

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage 

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