Mortgage rates in the United States are climbing quickly, creating fresh challenges for people trying to buy their first home. Lenders are raising rates and pulling deals almost daily, leaving borrowers with less choice and higher costs. Experts warn that more volatility is likely in the coming days and weeks.
President Donald Trump’s comments about “constructive” talks with Iran brought only a brief period of calm to the financial markets. Despite this, mortgage brokers report that major lenders continue to increase rates or withdraw products altogether. Many borrowers are left unsure if they are getting a fair deal or whether they need to rush their decision before the offer disappears.
Low-deposit mortgages, which are especially popular with first-time buyers, have been hit hardest. More of these deals vanished in a single day than at any point since the chaotic market turmoil of 2022. According to financial experts, there is “no rest in sight” for the upheaval in the mortgage market.
“It will be essential for borrowers to seek independent advice to keep on top of the mortgage mayhem,” said one analyst.
For first-time buyers who can only put down a 5% down payment, the average interest rate on a two-year fixed mortgage now sits above 6%. That makes borrowing significantly more expensive. On a $250,000 loan over 25 years, such a deal now costs about $1,200 more per year than an equivalent mortgage at the start of March.
More than 200 of these low-down-payment deals have been removed from the market since March 6. On Saturday alone, 52 deals were pulled — the highest daily total in years — with another 30 withdrawn early on Tuesday.
Fixed-rate mortgages lock in the interest rate for a set period, usually two or five years. After that time ends, borrowers must choose a new deal, often at whatever rates are available then. Until the recent conflict in the Middle East began, markets had expected the Federal Reserve to cut interest rates later this year. That expectation helped push mortgage rates lower. The war has now reversed that trend.
The average rate on a 30-year fixed mortgage has risen sharply in recent weeks and now stands at its highest level since early last year. Five-year adjustable-rate and shorter-term fixed products have also climbed significantly. More than one in five mortgage products available at the start of the month have now been withdrawn.
Mortgage brokers say lenders are finding it “almost impossible” to price new fixed-rate deals. Rate increases are coming “thick and fast,” and the cheapest offers are only staying available for three or four days.
“It is becoming increasingly difficult for borrowers to work out if they are getting a decent fixed rate and how long they will have to apply for a deal,” one broker explained.
Another expert described the situation as a “turbulent period” that is likely to continue until the situation in the Middle East becomes clearer.
“Let’s hope the talk of an easing in the conflict takes shape,” he said, “which should help the market find a level as it tries to predict what this may mean for the longer-term interest rate outlook.”
Will U.S. Interest Rates Fall Any Time Soon?
Financial markets have begun pricing in the possibility of fewer rate cuts — or even rate hikes — by the Federal Reserve this year because of fears that the conflict could push up inflation through higher energy prices. However, many economists are far more cautious and do not expect the Fed to raise rates aggressively.
The turbulence in the markets shows how uncertain both the geopolitical situation and the economy have become.
Better News for Some Retirees
While the rising costs are painful for new mortgage borrowers, the picture is brighter for people nearing retirement who are thinking about buying an annuity. Annuities turn a pension pot into a guaranteed income for life. Although they became less popular when flexible drawdown options appeared, annuity rates are linked to bond yields, which have risen since the war began. This means some retirees could now secure a higher income from their savings.
The current upheaval in the mortgage market serves as a reminder of how quickly global events can affect everyday finances. First-time buyers in particular are feeling the pressure, with fewer affordable options and the risk of even higher costs if the uncertainty drags on. Experts advise anyone in the process of buying a home to speak to an independent mortgage adviser as soon as possible to navigate the changing landscape.
