Hundreds of thousands of homeowners are facing a fresh mortgage squeeze as higher borrowing costs linked to the Iran conflict threaten to add more than £3,000 a year to household repayments.
Research from Hamptons suggests more than 500,000 borrowers coming to the end of five-year fixed-rate mortgage deals in 2026 could see their monthly repayments increase by over £250 as they refinance onto significantly higher rates.
Many of these homeowners secured ultra-low borrowing costs during the pandemic when Bank of England interest rates were at record lows. However, rising inflation and the recent energy shock caused by disruption in the Middle East have pushed mortgage rates sharply higher.
According to Hamptons, a typical borrower refinancing a five-year fixed-rate mortgage in May moved onto a rate of 4.85%, around 2.61 percentage points above their previous deal. Despite reducing the size of their outstanding mortgage balance, this translates into an average annual increase in repayments of £3,012.
The situation has worsened in recent months as the conflict involving Iran has driven energy prices higher. The closure of the Strait of Hormuz has fuelled concerns over inflation, prompting investors to push up government bond yields and interest rate expectations, both key drivers of mortgage pricing.
For borrowers coming off two-year fixed-rate deals, average mortgage rates have risen from 3.97% before the conflict began to around 5.02% today.
Hamptons head of research Aneisha Beveridge said many households had anticipated higher repayments but warned the pace of recent increases could still catch borrowers by surprise.
Industry figures estimate that around 1.8 million fixed-rate mortgage deals will expire this year, including more than 500,000 five-year fixes that are expected to experience the largest payment increases.
The renewed pressure on household finances comes despite growing expectations that the Bank of England will keep interest rates on hold. Economists increasingly believe recent falls in oil prices could reduce the need for further monetary tightening, although mortgage rates remain well above the levels seen before the Middle East conflict.
Analysts also warned that higher mortgage payments could weigh on consumer spending and economic growth as households divert a greater proportion of their income towards housing costs rather than discretionary spending.
