Conclusion
The UK mortgage market is now out of its period of cautious recovery that had brought down mortgage rates and costs. There has been a reversal in 2026 as a direct result of the Middle East conflict, although the impacts have been modest to date and not as severe as the impact of the Russia invasion of Ukraine in 2022.
Mortgage affordability, however, remains stretched relative to long-term norms, with payments consuming around 25–35% of average household income in Scotland’s largest cities. Elevated swap rates and global uncertainty will likely see a rise in average mortgage costs over the next 12 months at least, but these may be limited. Supportive government schemes could draw more buyers back into the market, including the Scottish Government’s recently launched First Homes Fund and the UK Government’s planned extension of Help to Buy (Your First Home), although the latter will be for new build only. The relaxation of mortgage borrowing rules by the Financial Policy Committee of the Bank of England last year has also enabled more first-time buyers to borrow at higher levels. First-time buyers remain the key driver of activity (accounting for over half of all mortgage sales), while homeowners remortgaging will need to carefully manage affordability pressures as legacy low-rate deals expire.
Monitoring the interaction between swap rates, inflation trends and government policy will be crucial in assessing how far and how fast affordability will be impacted.