Mortgage rates surge due to geopolitical concerns

What happened: Mortgage rates surged due to geopolitical concerns, particularly the war in Iran. In the UK, prospects of interest rate cuts in 2026 vanished, and the Bank of England now expects to raise rates at least once this year due to inflation fears. In the U.S., the average 30-year fixed mortgage rate reached its highest level since July 2026, up 33 basis points from the start of the year, driven by rising bond yields. U.S. home builder sentiment improved slightly in May but remained subdued due to inflation pressures.

Market impact: Mortgage lenders and home builders are affected. Higher mortgage rates make home purchases less affordable, potentially slowing down the housing market. Home builders like Lennar and DR Horton may face reduced demand, while mortgage originators like Wells Fargo and JPMorgan Chase could see lower refinancing activity. Inflation pressures also increase construction costs, squeezing home builder margins.

What to watch next: The evolution of the Iran war and its impact on inflation will be crucial. Upcoming catalysts include the Bank of England's interest rate decision on June 17, the U.S. Consumer Price Index (CPI) report on June 10, and the 10-year U.S. Treasury yield's reaction to these events. These will help determine the trajectory of mortgage rates and the broader housing market.