The Bank of England has cautioned that an extra 1.3 million households across the UK now face mounting mortgage expenses as a direct consequence of the ongoing Middle East conflict.
According to the central bank’s financial policy committee, approximately 5.2 million borrowers could see their monthly payments rise by the close of 2028.
This represents roughly 58 per cent of mortgage holders nationwide.
Prior to the outbreak of hostilities between US-Israeli forces and Iran, that figure stood at 3.9 million.
The Bank’s latest financial stability report stated that Britain’s economic prospects have “deteriorated”, placing growing strain on both households and businesses throughout the country.
The surge in borrowing costs has been dubbed “Trumpflation” after the US president, with lenders scrambling to adjust their offerings amid market turbulence.
Data from Moneyfacts revealed on Wednesday that typical two-year fixed residential mortgage rates have climbed to 5.84%, a sharp increase from 4.83 per cent at the beginning of March.
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.”
Bank of England under pressure as inflation could rise ‘back above 5 per cent’ | GETTY
Financial institutions have withdrawn around 1,500 mortgage products from the market, leaving approximately 7,000 home loan options available to consumers.
The conflict between US-Israeli forces and Iran, which commenced at the end of February, has delivered what the Bank described as “a substantial negative supply shock” to the global economy.
Oil and gas prices have risen sharply since hostilities began, while equity markets have experienced considerable volatility.
The financial policy committee warned that the shock would suppress growth, push inflation higher, and tighten financial conditions
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GETTYThe financial policy committee warned that the shock would suppress growth, push inflation higher, and tighten financial conditions.
Despite these pressures, the committee noted that Britain’s financial system has remained “resilient so far”.
However, it cautioned that a prolonged war raises the prospect of “large, frequent and possibly overlapping shocks” that could threaten global financial stability.
The Bank’s financial policy committee highlighted that the conflict could trigger and amplify vulnerabilities that existed before fighting erupted.
The committee noted that Britain’s financial system has remained “resilient so far”
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This includes strains on Government debt markets, inflated valuations of artificial intelligence firms, and risky lending by private credit companies operating beyond regulatory oversight.
International hedge funds have become significant holders of sovereign bonds, including UK gilts, creating what the committee described as a risk of “a disorderly unwind of positions causing a jump to illiquidity in core markets”.
The Bank held interest rates steady at 3.75 per cent last month, though markets now anticipate two rate rises before year’s end amid persistent inflationary pressures.