A highly unusual inversion has hit the UK mortgage market, with the average five-year fixed rate now below the two-year equivalent. Data from Moneyfacts shows the average two-year fix surged to 5.56% this month from 4.83% in early March, while the five-year rate climbed to 5.54% from 4.95%. This flip is driven by traders betting on higher short-term Bank of England rates following the Middle East conflict.

Lenders are struggling to price products amid extreme volatility. Virgin Money hiked its two-year rates by up to 0.7 percentage points, while NatWest and others announced similar increases. More than 1,500 fixed-rate products have been withdrawn since March, leaving just under 6,000 available. Swap rates, which underpin mortgage pricing, fluctuated wildly before stabilizing, forcing lenders to react swiftly, sometimes with immediate effect.

The rush from customers to secure rates before further hikes has compounded the problem, with brokers reporting a surge in applications that has brought forward months of expected business. While the broader housing market hasn't stalled yet, experts warn a 'brake on transaction activity' is coming, particularly for first-time buyers. Rachel Springall of Moneyfacts noted a similar inversion after the 2022 mini-Budget took three years to resolve, suggesting this abnormality may persist through ongoing market turbulence.