Mortgage payments could surge by more than £3,000 annually in a worst-case scenario if expenses continue to climb due to the Iran war, as per recent analysis. The ongoing conflict has led to an increase in mortgage expenses, with lenders anticipating no decrease in interest rates as previously projected.
Moneyfacts examined the Bank of England’s latest stress test scenarios to determine potential inflation spikes. In the most favorable outcome, if inflation peaks at 3.6% this year and drops below 3% the following autumn, homeowners might face an additional cost ranging from £150 to £1,050 per year.
In a moderate scenario where inflation reaches 3.7% and remains elevated, mortgage holders could see an extra expenditure of £1,050 to £1,950 annually. However, in the worst-case situation with inflation hitting 6.2%, households could face an added burden of £3,380 per year.
According to Moneyfacts’ analysis, the average two-year fixed-rate has surged from 4.83% in early March to 5.77% currently, while the average rate for a five-year deal has risen from 4.95% to 5.68% during the same period.
Adam French, Head of Consumer Finance at Moneyfacts, highlighted the potential economic impacts of the Iran conflict, stating that prolonged high oil prices could push inflation to as much as 6.2%, necessitating a more forceful response from central banks.
The Bank of England’s latest report predicts an approximate £80 increase in average monthly mortgage payments over the next three years. Around 53% of UK mortgage holders are expected to experience payment hikes, although roughly 25% of those on higher fixed rates may witness reductions. Over seven million homeowners have fixed-rate mortgages.
French advised borrowers to consider securing a new mortgage deal as a precaution against future rate hikes. Most lenders allow rate lock-ins up to six months before the current fixed rate expires, providing protection if rates rise or the option to switch to a cheaper deal if rates fall before the new one commences.
He also suggested discussing flexibility options with brokers or lenders, such as extending the mortgage term to lower monthly repayments, even though this would increase total interest paid over the loan’s lifetime. Proactive measures and keeping options open can significantly impact borrowing costs in a volatile market.