Bank of England Warns Iran War Could Push Up Mortgages for 1.3 Million Extra Homeowners
The Bank of England just dropped a warning that should worry every UK homeowner: the Iran war could push mortgage costs higher for an additional 1.3 million households by 2028.
The Headline
The Bank’s latest Financial Stability Report found that 5.2 million UK households now face mortgage cost increases within two and half years — up from the 3.9 million forecast before the Iran conflict began. That’s an extra 1.3 million homeowners dragged into higher payments because of the war.
The good news? The Bank says those increases will “remain modest” compared to the shock after the 2022 mini-budget. The bad news? “Modest” still means more money leaving your pocket every month.
How the Iran War Hits Your Mortgage
The chain reaction is straightforward:
- Oil and gas prices surge — up 64% in March alone
- Higher energy costs push up inflation — the cost of everything that needs shipping, manufacturing, or heating rises
- The Bank of England holds or raises interest rates — currently at 3.75%, markets are pricing in two hikes this year
- Mortgage rates climb — lenders adjust their pricing to match
Before the conflict, interest rates had been falling and were expected to drop further in 2026. That expectation is now gone.
What the Numbers Look Like Now
- 2-year fixed rate average: 5.84% (as of 1 April)
- 5-year fixed rate average: 5.75%
- Total mortgage products available: Dropped from 8,500 to 7,000
- Cheapest deals: Already withdrawn by several lenders
For context, someone with a £200,000 mortgage on a 5.84% rate pays roughly £1,275/month. If rates move to 6.34% (a modest +0.5%), that rises to about £1,365/month — an extra £90/month or £1,080/year.
What About House Prices?
Nationwide, one of the UK’s largest mortgage lenders, warned this week that house prices will be affected. Higher energy costs + higher borrowing costs = fewer people can afford to buy = reduced demand = softer prices.
But the Bank says the financial system has been “resilient so far” and that UK banks could support households “even if conditions were to be substantially worse than expected.”
What This Means for You
- If your fix is ending soon: Start shopping now. The best deals are disappearing fast
- If you’re on a variable rate: Budget for potential increases. Even 0.25-0.5% adds up
- If you’re looking to buy: Factor in the possibility that rates won’t fall as quickly as hoped
- Energy costs compound the pain: Mortgage + energy bills rising together is the real squeeze
Bank of England governor Andrew Bailey told Reuters that markets were “getting ahead of themselves” on rate hike expectations. Translation: don’t panic, but don’t be complacent either.
Plan ahead. Lock in rates if you can. This isn’t 2022 bad — but it’s not 2024 good either.
Sources: BBC News | BBC News (Markets)
