One million more UK homeowners set to face higher mortgages

New Delhi, India Jul 7, 2026 ALN: A million more homeowners face higher mortgage bills than the Bank of England had previously expected due to the impact of the Iran war.

Just over five million homeowners should expect their monthly mortgage repayments to increase by the end of 2028, according to Bank forecasts. This marks a significant rise from the four million projected by the Bank in December of the previous year. The increase in the number of homeowners affected is attributed to a combination of factors, including geopolitical tensions and economic conditions that have evolved since the last forecast.

However, the Bank's Financial Stability Report has indicated that the financial impact on homeowners will not be as severe as it has been in recent years. The financial landscape has been shaped by a variety of influences, including the ongoing war in Iran, which has had far-reaching implications on global energy markets and, consequently, on inflation rates and interest rates.

A typical owner-occupier rolling off a fixed-rate mortgage in the next two years is likely to face an increase of £45 on their monthly mortgage bill, according to the Bank's latest estimates. This figure is significantly lower than the typical rise of £120 for those who secured new mortgage deals between the end of 2022 and the end of 2024. The easing of the anticipated financial burden is a reflection of a more stable economic outlook compared to the immediate aftermath of the Iran conflict, which initially caused great uncertainty in the market.

Despite this, a concerning statistic emerged from the report: approximately 750,000 homeowners currently benefiting from interest rates below 3% will be rolling off these favorable deals this year. For these individuals, the average increase in monthly repayments is projected to be around £170. This sharp increase highlights the vulnerabilities faced by homeowners who locked in low rates during a period of economic stability, only to be confronted with a rapidly changing financial environment.

More than eight in ten mortgage customers in the UK have fixed-rate deals. These arrangements are designed to provide predictability in monthly payments, as the interest rate remains constant until the deal expires, which typically occurs after two or five years. The stability afforded by fixed-rate mortgages is often appealing to homeowners, especially during times of economic uncertainty. However, as these deals come to an end, borrowers may find themselves facing significantly higher rates, depending on the prevailing economic conditions at the time of refinancing.

According to the Bank, more than two million borrowers on two-year fixed deals expiring by the end of 2028 are projected to remortgage close to their existing rates, resulting in little change in their repayments. However, these borrowers are now less likely to see their repayments decrease in the coming years, a shift from earlier forecasts made prior to the escalation of the conflict in Iran. This underscores the broader economic implications of geopolitical events and their capacity to influence local financial markets.

The Iran war has had a profound impact on global energy supply chains, particularly through the closure of the crucial Strait of Hormuz shipping lane, which is responsible for transporting approximately one-fifth of the world's energy supplies. The disruption in this vital corridor has led to increased costs for oil and gas, which in turn has driven up inflation rates across various sectors of the economy. As inflation rises, central banks, including the Bank of England, are faced with the prospect of increasing interest rates to combat inflation, which directly affects mortgage rates.

The average two-year fixed mortgage rate saw a significant spike, rising from 4.83% at the beginning of March to a peak of 5.90% on April 12, according to data from the financial information service Moneyfacts. Although the rate has since decreased to 5.49%, the volatility in mortgage rates serves as a reminder of the fragility of the current economic climate and the potential for further fluctuations in the future.

The implications of these developments extend beyond individual homeowners, as they reflect the broader economic challenges that the UK faces in the wake of ongoing geopolitical tensions. The report is particularly relevant given the anticipated leadership transition within the Labour Party, with Andy Burnham expected to take over from Sir Keir Starmer as the party leader and potentially as prime minister in the near future. Burnham will inherit a complex economic landscape, marked by rising public debt and the challenges of managing a recovering economy.

The Office for Budget Responsibility (OBR) has issued warnings regarding the UK's public debt, which is at risk of spiraling in the coming years. The public finances are currently described as being in a "challenging" position, with projections indicating that debt could triple to nearly 300% of GDP over the next 50 years without significant government intervention. This alarming forecast highlights the urgent need for effective fiscal policies to address the economic challenges that lie ahead.

In its latest Fiscal Risks and Sustainability report, the OBR cautioned that "unsustainable fiscal outcomes that may not occur for some years are today's challenge, not tomorrow's." The report stresses that to maintain debt levels at 95% of GDP by 2030-31, substantial cuts in government spending would be necessary, equivalent to the entire education budget or the total revenue generated from corporation tax. Such drastic measures would have wide-ranging implications for public services and economic growth.

The Bank of England's report also highlighted the disproportionate impact of rising energy prices on lower-income households, including renters. These households tend to allocate a larger share of their income to essential expenses, limiting their ability to adjust spending in response to increasing costs. The financial strain on these households could have broader implications for consumer spending and economic growth, as reduced disposable income may lead to decreased demand for goods and services.

Despite these challenges, the report suggested that overall household finances remain resilient, even in a challenging external environment. Household debt levels are reported to be low relative to historical averages, which may provide some cushion against potential economic shocks. While vulnerable, low-income households remain more exposed to rising costs, the Bank indicated that debt is unlikely to precipitate sharp reductions in consumer spending, suggesting a degree of underlying economic stability.

In a separate section of the report, the Bank of England raised concerns regarding the rapid advancements in artificial intelligence (AI) and the associated risks of cyber attacks. The valuation of AI stocks has come under scrutiny, with the Bank noting that concerns over a potential bubble in the market have led to "more stretched" valuations. This cautionary note reflects the ongoing debates surrounding the sustainability of the tech sector's growth and the potential for volatility in financial markets as AI technology continues to evolve.