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A Word on the Mortgage Market – March 2026

UK Markets Steady After Volatility, but Rising Oil Prices and Gilt Yields Keep Pressure On

The UK financial markets have seen sharp swings this week, driven largely by escalating tensions in the Middle East. After a turbulent start, conditions stabilised today, offering some relief to investors and borrowers. However, rising oil prices, climbing gilt yields, and fading expectations of near‑term Bank of England (BoE) rate cuts continue to shape the economic outlook.

Rising Geopolitical Tensions Push Oil Prices Higher

Oil prices surged again today, with US crude rising to around $77 per barrel — the highest level since January 2025. This comes after a jump of more than 6% in the previous session. The growing conflict involving Iran has disrupted fuel shipments and raised fears of further supply constraints from the Middle East, a region critical to global oil and gas flows. Higher oil prices fuel inflation pressures worldwide. With energy costs rising, markets are increasingly expecting inflation to remain stubbornly high, reducing the likelihood of early interest‑rate cuts from major central banks.

UK Gilt Yields Spike as Rate‑Cut Expectations Fade

UK government bond yields moved sharply higher in response to the inflationary risks. The 10‑year gilt yield climbed to 4.53% — up more than 20bps in a single day — while the 2‑year gilt yield broke above 3.8%, its highest since late December. This marks one of the largest daily increases since April 2025. Just last week, markets were pricing in a 75–80% chance of a BoE rate cut in March. That probability has now collapsed to around 20–22%. Investors increasingly doubt the Bank of England will cut interest rates soon, especially if global energy prices continue pushing inflation upward. Gilt yields across the world have also risen, reflecting broad‑based concern over global inflation and interest‑rate policy.

Markets Take a Breather — For Now

Despite the earlier turbulence, markets steadied today:

  • Stock markets rebounded from recent losses
  • Oil prices levelled off after their sharp rise
  • Sterling strengthened against the US dollar
  • Swap rates eased slightly through the day

Some analysts point to fading early‑week panic or rumours of possible diplomatic talks involving Iran. However, with the situation highly unpredictable, any major incident — such as a tanker attack or significant civilian casualties — could rapidly change the outlook.

Spring Statement Offers Limited Support

Rachel Reeves’ Spring Statement provided little to offset wider market concerns. The Office for Budget Responsibility (OBR) revised down its UK growth forecast for 2026 from 1.4% to 1.1%. While forecasts for 2027 and 2028 were nudged slightly higher to 1.6%, they do not yet incorporate the potential impact of further energy price shocks.
The OBR also projected lower government borrowing and weaker inflation. However, these forecasts may quickly become outdated if the Middle East crisis intensifies.

What This Means for Mortgage Rates, Lenders, and Borrowers

Swap rates — which heavily influence fixed mortgage pricing — have risen sharply:

  • 1‑year swaps up 12.4bps
  • 2‑year swaps up 16bps
  • 5‑year swaps up 14.9bps

Many lenders appear to be waiting to see whether volatility continues or may have pre‑secured cheaper funding before swap rates spiked. However, if elevated swap rates persist, lenders will begin running out of cheaper money, and fixed mortgage rates are likely to rise.

Remortgagers and borrowers with product transfers (PTs) or decisions pending should be encouraged to act promptly. As history shows, once one major lender adjusts pricing, others typically follow.