UK households could face a sharp rise in mortgage costs if conflict in the Middle East continues to escalate, with new analysis suggesting annual repayments may increase by as much as £3,380 in a worst-case scenario.
The warning comes after a surge in global oil prices, with Brent crude rising to around $110 a barrel, up from roughly $72 at the end of February. Energy prices remain one of the key drivers of inflation, feeding through into transport costs, goods production, and wider household spending. When inflation rises, it often leads to higher interest rates, which then affects mortgage pricing.
Inflation risks keep interest rates under pressure
There is growing concern that inflation could remain higher for longer if energy markets stay volatile. The Bank of England recently held interest rates at 3.75% for the third consecutive meeting, largely to avoid triggering further inflationary pressures at a sensitive point in the economy.
However, financial markets are now less confident about future rate cuts, with expectations shifting towards prolonged higher rates and even potential increases later in the year. Since fixed mortgage rates are heavily influenced by future interest rate expectations and swap markets, this creates upward pressure on borrowing costs.
Worst-case scenario: mortgage costs jump significantly
In its latest set of economic stress tests, the Bank of England outlined several possible paths for inflation and interest rates depending on how the geopolitical situation develops.
In the most severe scenario, oil prices remain above $120 per barrel and inflation peaks at around 6.2%. Under these conditions, the base rate could rise sharply from 3.75% today to around 5.25%.
According to analysis from Moneyfacts, this would likely push average fixed mortgage rates up to around 6.75%, compared with roughly 4.89% before the current period of instability.
For a typical borrower with a £250,000 mortgage over 25 years, monthly repayments could rise to approximately £1,727, up from around £1,445 previously. That would add around £3,380 per year in additional costs for new borrowers or those remortgaging under these conditions.
Homeowners already locked into fixed-rate deals would be protected in the short term, but would feel the impact once their existing deals expire.
Central scenario: slower but steady increases
The Bank’s central outlook assumes energy prices gradually ease but remain elevated for longer, keeping inflation higher than previously expected.
In this scenario, inflation peaks at around 3.7% before easing slowly. Mortgage rates are expected to settle between 5.5% and 6%, meaning monthly repayments on a £250,000 mortgage could range from £1,535 to £1,610.
Even under this more moderate projection, households could still see annual increases of between £1,050 and £1,950 compared with current average mortgage costs.
Best-case scenario: limited but still higher costs
A more optimistic scenario assumes a quicker resolution to the conflict, allowing energy prices to fall and inflation to peak at around 3.6% before dropping below 3% over time.
In this case, mortgage rates would likely stabilise between 5% and 5.5%, with monthly repayments on a £250,000 mortgage ranging from £1,460 to £1,535. That still represents an annual increase of roughly £150 to £1,050 compared with pre-conflict levels.
Scenario comparison: how mortgage costs could shift
| Scenario | Inflation outlook | Energy/oil assumption | Base rate implication | Avg mortgage rate | Monthly repayment (£250k / 25y) | Annual cost | Change vs pre-conflict |
| Pre-conflict baseline | ~2% trajectory | Stable | 3.75% (expected cuts) | 4.89% | £1,445 | £17,346 | — |
| Current trend | Rising | Elevated | 3.75% (no cuts expected) | 5.66% | £1,559 | £18,710 | +£1,350 |
| Best case | Peaks 3.6%, falls below 3% | Prices ease | Potential cuts | 5.0%–5.5% | £1,460–£1,535 | £17,500–£18,400 | +£150–£1,050 |
| Central case | Peaks 3.7%, remains higher for longer | Slower decline | Higher for longer | 5.5%–6.0% | £1,535–£1,610 | £18,400–£19,300 | +£1,050–£1,950 |
| Worst case | Peaks 6.2% | Oil > $120 sustained | Up to 5.25% | 6.75% | £1,727 | £20,724 | +£3,380 |
What borrowers can do to manage risk
Experts say the biggest concern for households is timing, especially for those nearing the end of fixed-rate mortgage deals who may need to remortgage during a period of higher rates.
Adam French, head of consumer finance at Moneyfacts, noted that while outcomes vary, the risk of higher borrowing costs is very real if inflation remains elevated for an extended period.
He explained that most mortgage pricing typically sits above the base rate, meaning any sustained rise in interest rates could quickly feed into higher monthly payments.
However, borrowers do have some tools available to reduce risk. Many lenders allow customers to secure a new mortgage deal up to six months before their current fixed term ends, effectively allowing them to lock in today’s rates ahead of potential increases.
If rates later fall, borrowers can often switch to a better deal before the new mortgage begins. Some may also consider extending mortgage terms to reduce monthly payments, although this can increase the total interest paid over time.
Outlook: uncertainty remains the key factor
While forecasts vary depending on how the geopolitical situation develops, the overall message is that mortgage costs remain highly sensitive to inflation and energy markets.
If tensions ease quickly, the impact on households may be limited. But if disruption continues, the combination of higher oil prices, persistent inflation, and tighter monetary policy could place significant pressure on mortgage affordability across the UK housing market.
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