The ongoing conflict in the Middle East is expected to push up mortgage payments for approximately 1.3 million UK homeowners by the end of 2028, according to the Bank of England. The Bank’s recent report highlighted that rising global energy prices and the cost of government borrowing due to the war could lead to higher borrowing costs. As a result, UK households are likely to face increased mortgage payments, with 5.2 million households projected to experience higher costs compared to previous forecasts of 3.9 million.
Despite the increase in mortgage costs, the report indicates that the scale of these increases will remain modest in comparison to recent years, such as following the 2022 mini-budget. The report also pointed out that the UK banking system has so far remained resilient, with markets managing some of the large economic shifts resulting from the ongoing conflict. Mortgage rates, however, have already started to rise, with the average rate for a two-year fixed mortgage deal reaching 5.84% as of April 1.
The impact of rising energy and borrowing costs is also expected to reduce activity in the housing market, making it more difficult for potential buyers to afford homes. Nationwide, one of the UK’s largest mortgage lenders, has warned that house prices may be affected by these economic shifts. The fallout from the Middle East conflict, combined with increased costs, could soften the housing market as borrowing becomes more expensive.
Although the Bank of England has stated that the UK banking system is capable of supporting households and businesses even in the event of worsened economic conditions, the financial pressures on homeowners and businesses are likely to grow. The housing market’s performance will largely depend on whether energy and mortgage costs continue to rise, which could limit consumer confidence and dampen demand.
