Iran War Threatens to Increase Mortgage Payments for 1.3 Million UK Households

The ongoing conflict in the Middle East, specifically the US-Israel war on Iran, has sent shockwaves through the global economy, with the Bank of England predicting that over 1.3 million more UK households could face increased mortgage payments.

Financial markets have reacted swiftly, with banks pulling around 1,500 mortgage products and raising interest rates on their remaining 7,000 home loan products in recent weeks, according to the Bank's financial policy committee (FPC).

The FPC warns that approximately 5.2 million borrowers, or roughly 58% of borrowers across the country, could face higher mortgage payments by the end of 2028, up from 3.9 million before the conflict began.

The data provider Moneyfacts reported that the average two-year fixed residential mortgage rate has risen to 5.84%, up from 4.83% at the start of March.

Caitlyn Eastell, a personal finance analyst at Moneyfacts, noted that the impact on borrowers has been almost immediate, with borrowing costs sharply rising.

The FPC emphasized that a prolonged war increases the possibility of large, frequent and possibly overlapping shocks that could put global financial stability at risk.

The UK's economic outlook has deteriorated, increasing pressure on households and businesses, with the FPC adding that a prolonged conflict could amplify risks that were already present before the conflict began.

The Bank of England governor, Andrew Bailey, cautioned that markets may be getting ahead of themselves by pricing in interest rate hikes in response to the Iran war, stating that the Bank's remit is to cause the least damage to the economy and jobs.