The Bank of England has warned that an additional 1.3 million UK households are set to face higher mortgage costs following the economic shock caused by the conflict in the Middle East. In its latest financial stability report, the central bank said the UK economic outlook has deteriorated, with oil and gas prices rising sharply since the US-Israeli conflict with Iran began at the end of February.
The report noted that the shock will weigh on growth, increase inflation, and tighten financial conditions. Although the UK financial system has been resilient so far, the global macroeconomic backdrop is now more unpredictable, with risks already elevated before the conflict.
Prime Minister Sir Keir Starmer warned that the coming weeks will not be easy and that how the UK emerges from the crisis will define the nation for a generation. He signalled closer ties with the EU to mitigate the impacts, stating that Brexit had done deep damage to the economy and that opportunities to strengthen security and cut living costs are too big to ignore.
Chancellor Rachel Reeves insisted that any cost of living support would be based on household income, refusing to commit to immediate help for drivers amid rising fuel costs. She said lessons must be learned from past support during the Ukraine war, which disproportionately benefited the richest.
According to the Bank, average rates for two-year fixed-rate mortgages have risen by about 0.8 percentage points, and five-year fixes by 0.7 points. Some 5.2 million mortgage holders could face higher repayments by the final quarter of 2028, up from a previous forecast of 3.9 million. The total number of mortgage products available has also fallen from 8,500 to 7,000.
