Mortgage pain returns as rates jump and BoE warns conflict could hit 1m households

UK mortgage costs have risen sharply this week, with lenders pushing up borrowing rates as the Bank of England warned that geopolitical turmoil in the Middle East could leave more than a million households facing higher monthly repayments.

The average rate on a two-year fixed mortgage climbed to 5.61pc, up from 5.23pc last week, according to data from Uswitch, while the average five-year fixed deal rose to 5.63pc from 5.32pc.

The increases come as major lenders, including HSBC, NatWest and Nationwide Building Society, all lifted mortgage pricing this week, with only Barclays holding rates steady.

The Bank of England has warned in its latest Financial Stability Report that the UK economic outlook has “deteriorated”, with the conflict in Iran and wider tensions in the Middle East pushing up energy prices and forcing markets to reassess expectations for interest rate cuts.

Officials said hopes of a cut to 3.5pc this year had effectively been pushed back, as global instability reshapes the inflation outlook and complicates the path for monetary easing.

The Bank also warned that up to 5.2 million UK mortgage holders could see higher repayments by 2028, a sharp increase on previous estimates, as fixed-rate deals continue to reset at higher levels.

Although the central bank said the expected increases in monthly payments would “remain modest” compared with previous shocks, it acknowledged that households are already under significant pressure from elevated living costs.

Average two-year fixed mortgage rates have risen by around 0.8 percentage points since the onset of recent global tensions, while five-year fixes are up by roughly 0.7 points.

The total number of mortgage products available on the market has also fallen from 8,500 to around 7,000, indicating tighter conditions and reduced competition among lenders.

Analysts say the combination of rising borrowing costs and reduced rate-cut expectations marks a renewed squeeze on households, particularly those coming off ultra-low fixed-rate deals agreed in previous years.

With energy prices also rising, the Bank has warned that geopolitical shocks are once again feeding through directly into household finances, reviving concerns about financial strain across the UK economy.