Mortgage repayments could jump £300 a month in worst-case scenario

Mortgage holders could see their repayments increase by more than £3,000 a year, or roughly £280 a month, if the Bank of England’s worst-case economic projections regarding the US-Iran conflict become a reality.

Financial data firm Moneyfacts has analysed historic mortgage rates to demonstrate how the economic fallout, dubbed 'Trumpflation', could impact household finances through rising inflation and higher mortgage costs.

What are the Bank of England's scenarios?

At its recent rate-setting meeting on 30th April 2026, the Bank of England (BoE) outlined three hypothetical scenarios based on how the conflict in Iran might affect the economy. The crisis has already pushed the price of Brent crude oil up from $72 at the end of February to over $120 at its peak. Higher oil prices typically feed into higher inflation by increasing the costs of energy, transport, and manufacturing.

When inflation rises, the central bank often responds by increasing the base rate, which in turn drives up fixed mortgage rates.

To communicate the possible future projection for where inflation and the BoE base rate could be in the future, the bank set out the following three possible scenarios for the UK economy:

• Scenario A - Oil prices peak around $110 a barrel and fall back below $80 before the end of 2026, where they stay. Inflation peaks at 3.6% in 2026 and GDP weakens to around 0.5% by the start of 2027 before recovering.
• Scenario B - Oil stays above $80 a barrel and inflation peaks at 3.7% due to second-round effects, particularly from food inflation. GDP weakens to around 0.5% by the start of 2027 before recovering.
• Scenario C - Oil prices remain above $130 a barrel for the rest of this year. Inflation peaks at 6.2% in the first three months of 2027, triggering the Bank to hike interest rates as high as 5.25%.

At the time Andrew Bailey said: "...I place most weight on Scenario B, albeit with slightly reduced second-round effects. I place some weight on Scenario C, which would require a stronger monetary policy response."

How much could your mortgage go up under each scenario?

The exact impact on homeowners will depend on which economic path the UK ultimately follows. However, the table below shows the estimated increase in mortgage payments for a typical borrower with a £250,000 mortgage over 25 years. Under this example the pre-Iran war average mortgage rate was 4.89% meaning that their monthly mortgage payments were £1,445.

Scenario	Oil price assumption	Inflation outlook	BoE base rate impact (currently 3.75%)	Estimated new average mortgage rate (currently 4.89%)	Annual cost increase (vs pre-conflict)	Monthly payment increase (vs pre-conflict)
Best Case (Scenario A)	Oil price falls back below $80 a barrel by end of 2026	Peaks at 3.6%, falls below 3%	Stability with cuts sooner	5.0% - 5.5%	+£150 to £1,050 a year	up to £88 a month
Most Likely (Scenario B)	Oil price stays above $80 a barrel	Peaks at 3.7%, stays elevated	Higher for longer	5.5% - 6.0%	+£1,050 to £1,950 a year	up to £163 a month
Worst Case (Scenario C)	Sustained oil price above $120 for rest of the year	Peaks at 6.2%	Rises to 5.25%	6.75%	+£3,380 a year	up to £282 a month

Adam French, head of consumer finance at Moneyfacts, stated that the difference between these economic paths is "brutal" for borrowers and warned that the worst-case scenario would be a "devastating hit to affordability".

How to limit the impact of rising mortgage rates

If you are due to remortgage in the near future or are planning to buy a home, and are worried about mortgage rates rising, there are several ways to mitigate the risk of rising costs:

• Lock in a rate early: Most lenders allow borrowers to secure a new mortgage deal up to six months before their current fixed rate expires. This acts as an insurance; if rates rise, you are protected, and if they fall before your new deal starts, you can often switch to a cheaper deal before the new one begins. If you are staying with your current lender (a product transfer) then the switch is simple and should not cost anything. However, if you are looking to secure the best rate in the market by remortgaging to a new lender, then changing the new deal before it is due to start will likely incur the charges from the lender and possibly your mortgage broker if you used one, and you'd likely require new credit checks. Read our article, "Mortgage product transfer window - when to speak to your lender".
  
• Look beyond the headline rate: Bear in mind that the cheapest headline mortgage rate is not always the best option. Product fees, valuation costs and cashback offers all impact the true cost of the deal.
• Consider overpaying: If you are currently on a fixed-rate deal with a favourable rate, making extra payments can help reduce your mortgage balance. This can soften the impact of higher rates later on, but you should always check your lender's overpayment limits to avoid early repayment charges.
• Extend your mortgage term: Extending the lifespan of your mortgage can reduce your immediate monthly payments if you are struggling. However, Mendes warns this should only be used as a "pressure valve" and not taken lightly, as it means you will pay more interest over the total life of the loan.
• Get your finances 'mortgage-ready': Borrowers should avoid taking on new credit, such as car finance or large credit card balances, before applying for a mortgage. High levels of debt can negatively affect affordability calculations and reduce what a lender is willing to offer you.
• Get a FREE mortgage review - Anyone wanting to know more about how rate rises and cuts impact their finances should speak with an independent mortgage adviser* as they can provide specialist advice. Finally, make sure to bookmark our mortgage rate comparison tool and our roundup of the 'Best mortgage rates in the UK'.

 

 

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