Monthly payments could jump for over a million homeowners because of Iran conflict, says central bank
The ongoing US-Israel-Iran war could push mortgage payments higher for an additional 1.3 million borrowers across the UK by the end of 2028, according to a new report by the Bank of England.
That conflict – which erupted at the end of February – has already sent global oil prices soaring and stirred fears of a sharp uptick in inflation.
And the BoE now sees higher risk for mortgage holders because of the war, which escalated on Wednesday as Iran threatened attacks on US tech giants despite Donald Trump’s claims that its leaders wanted a ceasefire.
Payment shock to increase – but don’t expect a meltdown
Before the war began, the Bank of England expected about 3.9 million mortgage borrows to face higher payments before the start of 2029. That figure has now jumped to 5.2 million, the Bank’s Financial Policy Committee said, although it stopped short of forecasting a crisis.
That’s because payment increases are expected to remain modest, especially by comparison with former prime minister Liz Truss’s disastrous 2022 minibudget, and the UK financial system looks capable of withstanding any war-related economic pain.
The country’s banking system would still be equipped to support households and businesses, the central bank said, “even if economic and financial conditions were to be substantially worse than expected.”
Average payment increases for borrowers, the central bank said, would be “modest in comparison to those experienced in recent years, as most mortgagors were already on higher rates.”
Mortgage market faces uncertain outlook as war continues
The UK mortgage market has taken a sharp hit since the beginning of the war. Scores of lenders have withdrawn products and hiked rates as a direct consequence of oil- and gilt-related shocks.
On Wednesday, Barclays increased rates by as much as 40 basis points on a range of its existing-customer residential mortgages, marking the latest in a host of price increases by major lenders even as it slashed rates on other products.
The number of mortgage products offered across the UK has plunged by about 1,500, the BoE’s report said, but the pullback has been less severe than the product cull that followed the Truss minibudget.
Still, the latest chaos has tempered mortgage industry expectations of lower rates by the end of this year. The results of a Mortgage Introducer poll last week showed 38% of UK mortgage professionals now see the Bank of England hiking rates twice this year, with 34% expecting one rate increase and just 20% anticipating no change.
Homebuilder sentiment also appears to be on the wane. Construction giant Berkeley Group said on Wednesday it was pausing new land acquisitions and slowing investment because of the weaker housing market outlook, sending its shares plunging to their lowest level in a decade.
Among mortgage borrowers, the current rate volatility is causing plenty of concern. “I’m already seeing people whose fixed rates do not end until September and October reaching out now,” Nouran Moustafa, executive financial and mortgage adviser at Roxton Wealth told Mortgage Introducer, “which tells you everything about the mood in the market.”
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