The Bank of England's Financial Policy Committee (FPC) has warned that the US-Israel conflict with Iran could lead to higher mortgage payments for an additional 1.3 million UK households. The FPC described the war as 'a substantial negative supply shock' to the global economy, which has already caused banks to withdraw around 1,500 mortgage products and raise rates on many of the remaining 7,000.
The Bank now forecasts that approximately 5.2 million borrowers—or 58% of all borrowers—could face increased mortgage payments by the end of 2028, up from 3.9 million before the conflict began. Data from Moneyfacts shows the average two-year fixed residential mortgage rate has risen to 5.84%, from 4.83% at the start of March. Analysts have dubbed the rate increases 'Trumpflation' after the US president.
Caitlyn Eastell, a personal finance analyst at Moneyfacts, said: 'It has been just over a month since the start of the Middle East conflict, and the impact on borrowers has been almost immediate as borrowing costs sharply rose.' The FPC noted that a prolonged war increases the risk of 'large, frequent and possibly overlapping shocks' that could threaten global financial stability.
The committee also highlighted that the conflict has exacerbated pre-existing vulnerabilities, including pressures on government debt markets, high valuations of AI companies, and risky loans from private credit firms. It urged lenders and investors to stress-test their portfolios for further sudden price adjustments. The Bank of England kept interest rates at 3.75% last month, but markets expect two rate hikes this year.
Governor Andrew Bailey cautioned that markets may be overreacting, saying: 'We have to deal with the shocks that come our way... but our remit is very clear... we have to do so in a way that causes the least damage in terms of activity in the economy and in terms of jobs.' The FPC warned that weaker growth and higher interest rates could limit governments' ability to respond to future shocks.
