The conflict in Iran has directly impacted UK mortgage holders, with average two-year fixed rates jumping from 4.83% at the start of March to 5.84% by April 24, according to Moneyfacts data. This increase translates to an additional cost of approximately £90 per month, or nearly £1,000 annually, for a typical £200,000 mortgage over 25 years. Financial markets, which previously anticipated interest rate cuts in 2026, are now pricing in potential increases by the Bank of England due to inflationary pressures from the conflict.
This market volatility has led to a substantial withdrawal of mortgage products. Since the conflict began on February 28, 2026, around 1,500 mortgage products have been pulled from the market, representing about 21% of available residential mortgage products. On March 9, 2026, UK lenders withdrew 308 mortgage products, marking the largest single-day withdrawal since the 2022 mini-budget crisis. Lenders are responding to surging gilt and swap rates, which are benchmarks for borrowing costs, by repricing loans and anticipating that the Bank of England's base rate may need to remain higher for longer.
The Bank of England estimates that the Iran war could lead to increased monthly mortgage payments for an additional 1.3 million UK households, bringing the total number of borrowers facing higher payments to 5.2 million, or approximately 58% of all borrowers, by the end of 2028. This compares to 3.9 million households before the conflict. While the Bank of England held its interest rate at 3.75%, the prospect of imminent rate cuts has vanished, and some analysts believe markets are prematurely pricing in future rate hikes, though the Bank's governor, Andrew Bailey, has cautioned against such assumptions.
