Mortgage costs could rise by £3,000 a year as ‘Trumpflation’ hits Britain

British homeowners could be hit with an extra £3,000 a year on their mortgage payments if the worst effects of “Trumpflation” become reality, according to new analysis.

The warning comes as the Bank of England models scenarios where the conflict involving America and Iran keeps oil prices above $120 per barrel, pushing UK inflation as high as 6.2 per cent.

Under that scenario, the Bank’s base rate could rise to 5.25 per cent, with average mortgage rates climbing to around 6.75 per cent.

Research from Moneyfacts found this would add roughly £280 a month to repayments for homeowners with a typical £250,000 mortgage, equal to around £3,360 a year.

The analysis, based on more than 30 years of historical data, found mortgage rates usually sit between 1.5 and 1.75 percentage points above the Bank of England’s base rate.

This means any prolonged rise in interest rates would quickly feed through into higher mortgage costs for households.

For a typical £250,000 mortgage spread over 25 years, monthly repayments would jump from around £1,445 before the conflict began to approximately £1,727 under the worst-case scenario.

That represents an annual mortgage bill of £20,724, compared with £17,346 at pre-war levels – a difference of £3,380 per year.

Those with larger outstanding balances face even steeper increases, with the average London mortgage holder owing £280,000 according to UK Finance figures.

Adam French, head of consumer finance at Moneyfacts, described the potential impact as severe: “That would translate into an increase of more than £3,000 a year for many borrowers – a devastating hit to affordability.”

Financial markets have shifted dramatically since hostilities began, now pricing in three interest rate rises before the year ends.

Prior to the conflict, traders had been anticipating cuts to borrowing costs instead.

This changed outlook is already affecting mortgage availability, with lenders pulling their most competitive products from the market.

The average two-year fixed rate has climbed from 4.83 per cent before the war to 5.77 per cent currently.

Five-year deals have seen similar movement, rising from 4.95 per cent to 5.68 per cent.

Even under more moderate conditions, homeowners will not escape unscathed.

The Bank of England’s central scenario, where inflation proves stickier and energy costs decline more gradually, suggests mortgage rates holding between 5.5 and 6.0 per cent, adding between £1,050 and £1,950 to annual repayments.

PA

Should energy prices fall quickly and inflation peak at around 3.6 per cent, borrowers could see rates settle between 5.0 and 5.5 per cent, limiting the annual increase to between £150 and £1,050.

Mr French advised that homeowners can take steps to protect themselves: “Most lenders allow you to secure a new deal up to six months before your current fixed rate expires, effectively giving you the option to ‘lock in’ today’s rates as insurance.”

Extending mortgage terms to reduce monthly payments is another option, though this increases total interest paid over the loan’s lifetime.