The Bank of England has issued a stark warning about the economic fallout from the ongoing conflict in the Middle East. This situation is expected to affect approximately 1.3 million UK households, who may see rising mortgage costs.
Impact of Middle East Conflict on UK Households
According to the Bank’s latest financial stability report (FSR), the UK’s economic outlook has worsened due to this international crisis. The conflict, which intensified between US-Israeli forces and Iran in late February, has led to sharp increases in oil and gas prices. This volatility is also affecting equity markets.
Increased Financial Pressures
The Bank warns that the economic shock will hamper growth, elevate inflation, and tighten financial conditions. Financial experts expressed concerns about the potential for multiple vulnerabilities to emerge simultaneously, which could compromise financial stability and the delivery of essential services to households and businesses.
- 1.3 million UK households facing increased mortgage costs
- 5.2 million mortgage holders expected to see rate rises by the end of 2028
- Average two-year mortgage rates up by 0.8 percentage points
- Average five-year mortgage rates increased by 0.7 percentage points
- Total mortgage products in the UK down from 8,500 to 7,000
Interest Rates and Mortgage Products
In its monetary policy meeting last month, the Bank kept the interest rate at 3.75%. However, future increases are possible due to ongoing inflationary pressures. As a result, banks have raised their mortgage rates significantly and have withdrawn several mortgage products from the market.
Currently, projections show that about 5.2 million UK mortgage holders could experience higher repayments by late 2028. This figure is up from an earlier estimate of 3.9 million prior to the onset of the Middle East conflict. Although the report notes that typical increases will likely be modest compared to recent years, the situation remains fluid and will require close monitoring.
The reduction of mortgage products—from 8,500 to 7,000—indicates a tightening market, although this number still exceeds the levels observed after the initial COVID-19 pandemic and during the financial instability caused by the 2022 mini-budget under Liz Truss’s administration.
