Britons looking for a new home loan are now facing an average annual bill almost £800 higher than just a fortnight ago. This sharp increase comes as global tensions, dubbed 'Trumpflation', push up UK mortgage rates and force the Bank of England into a holding pattern on interest rates.
The central bank had been widely tipped to cut rates this month. Markets, in fact, had priced in an 85 per cent chance of a reduction to 3.5 per cent before the recent escalation of conflict in the Middle East.
But not anymore. The Monetary Policy Committee is now almost certain to keep rates at 3.75 per cent when it meets this Thursday. What a difference a couple of weeks can make.
This dramatic shift comes as the war in Iran sends shockwaves through the global economy, primarily by driving up oil and gas prices. And that, in turn, has stoked fears of renewed inflation back home, prompting lenders to pull deals and reprice their offerings at speed.
The Cost of Conflict Hits Home
The financial impact of these global events is already hitting homeowners hard.
Moneyfacts, a data company, reports that the average two-year fixed mortgage rate has jumped from 4.83 per cent at the start of March to 5.28 per cent today. It's now at its highest point since April 2025.
For a typical borrower with a £250,000 mortgage spread over 25 years, that means paying an extra £788 a year for a two-year fix. A five-year deal isn't much better, costing £651 more annually, according to Adam French, Moneyfacts' head of consumer finance.
And Not just the average rates. The choice available has also dwindled dramatically. There were nearly 500 fixed-rate deals below 4 per cent on the market just last week. Now, there are only nine.
Lenders have pulled almost 700 mortgage products in total, marking the biggest upheaval since the chaos following Liz Truss's mini-budget in 2022.
Thing is, this upward march of home loan costs is a major blow for anyone hoping to buy or remortgage. Around 1.8 million fixed-rate deals are set to expire in 2026, meaning a huge number of homeowners will soon need to find a new mortgage.
Understanding 'Trumpflation'
The term 'Trumpflation' has been coined to describe The wave of economic uncertainty. It stems from the US- and Israel-led action in Iran, which has directly impacted energy markets. Oil prices, for instance, surged to nearly $110 a barrel recently following a strike on an Iranian energy facility.
Not just about the immediate conflict. The closure of the Strait of Hormuz, a critical shipping lane for oil and gas, has choked off supplies and sent prices soaring. And those higher energy prices get passed along, translating into bigger fuel and energy bills for households and businesses alike.
Point is, The inflationary pressure makes it much harder for central banks to consider cutting rates. Before the war, economists had largely expected two cuts to UK interest rates in 2026, building on four announced by the Bank of England last year.
Now, those cuts are off the table for the foreseeable future. Some commentators even suggest rates could rise before the end of the year.
The US Federal Reserve, for its part, also left rates on hold recently, citing the 'uncertain' impact of the war. The move, incidentally, is likely to have infuriated former US President Donald Trump, who has consistently pushed for rate cuts. The concept of 'Trumpflation' also ties into the idea that a potential Trump presidency could bring further economic volatility, particularly regarding energy policy and international relations, which could fuel inflation.
The Bank's Dilemma and Future Outlook
The Bank of England's Monetary Policy Committee will be poring over its inflation forecasts. Rob Wood, chief UK economist at Pantheon Macroeconomics, notes that petrol prices have already started climbing, and it'll take a couple of months for them to fall back, even if oil prices drop today.
Analysts at ING anticipate headline inflation will peak in late summer, hitting around 3.5 per cent. Oxford Economics, however, warns that if the conflict drags on, inflation could even exceed 5 per cent – a far cry from the Bank's 2 per cent target. Such figures would cause another squeeze on incomes already feeling the pinch from rising fuel and mortgage costs.
Still, while mortgage lenders are raising their rates, this doesn't automatically mean the Bank of England will hike the base rate on Thursday. Instead, it shows that the path to lower rates, once seemingly clear, has become significantly cloudier.
Money markets have started pricing in potential rate increases later this year, with a 57 per cent chance of a hike from 3.75 per cent to 4 per cent in September. The chances of any cuts over the coming year have collapsed almost to zero.
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The immediate future for UK households, particularly those with mortgages, looks challenging. The ripple effect of geopolitical events on everyday finances is stark, and the Bank of England now faces the unenworkable task of navigating an economic landscape made dramatically more volatile by distant conflicts.
This article was created with AI assistance.
