Mortgage costs could rise significantly under scenarios of sustained inflation driven by geopolitical tensions and energy price pressures, fresh analysis from Moneyfacts suggests.
Drawing on more than 30 years of historical data, its INTEREST division found that mortgage rates typically sit around 1.5% to 1.75% above the Bank of England base rate, meaning changes in monetary policy can feed through quickly into borrower costs.
Under a worst-case “Trumpflation” scenario – where oil prices remain above $120 and inflation peaks at 6.2% – the base rate could rise to 5.25%, pushing average mortgage rates to around 6.75%.
On a typical £250,000 repayment mortgage over 25 years, that would equate to monthly repayments of around £1,727, or £20,724 annually, an increase of approximately £3,380 compared with pre-shock levels.
· Scenario A (more benign): Energy prices ease quickly, CPI peaks at 3.6% this year and falls below 3% next autumn – mortgage rates likely to edge down sooner.
· Scenario B (central case): Energy prices fall more slowly, inflation reaches 3.7% and stays higher for longer. Markets currently view this as the most likely path, implying mortgage rates stabilise around their current levels with only modest upward pressure.
· Scenario C (worst case): Oil remains above $120, inflation peaks at 6.2%, and base rate could rise to 5.25% – pushing average mortgage rates towards 6.75%.
| Scenario | Inflation outlook | Energy/oil assumption | Base Rate implication | Est. mortgage rate | Monthly repayment (£250k / 25y) | Annual cost | Change vs pre-conflict |
| Pre-conflict baseline | 2% trajectory | Lower, stable | 3.75% (with cuts expected) | 4.89% | £1,445.50 | £17,346 | — |
| 1 May | Rising | Oil elevated | 3.75% (no expectation of cuts) | 5.66% | £1,559.20 | £18,710 | +£1,350 / year |
| Scenario A (benign) | Peaks 3.6%, falls <3% | Prices fall back | Stability with cuts sooner | 5.0–5.5% | £1,460 – £1,535 | £17,500 – £18,400 | +£150 – £1,050 / year |
| Scenario B (central) | Peaks 3.7%, stays elevated | Elevated for longer and slower decline | Higher for longer | 5.5–6.0% | £1,535 – £1,610 | £18,400 – £19,300 | +£1,050 – £1,950 / year |
| Scenario C (worst case) | Peaks 6.2% | Oil >$120 sustained | Up to 5.25% | 6.75% | £1,727
|
£20,724 | +£3,380 / year |
Assumed borrowing of £250,000 over 25 years. Source: INTEREST from Moneyfacts
Adam French, head of consumer finance at Moneyfacts, said: “The Bank of England’s “Trumpflation” stress scenarios lay bare just how damaging the economic repercussion of the Iran conflict could become.
“At one end, a relatively benign path would see energy prices ease quickly, with inflation peaking at around 3.6% before falling back below target next year. At the other, a prolonged period of elevated oil prices could drive inflation as high as 6.2%, forcing a much more aggressive response from the central banks rate setters.
“For borrowers, the difference between those paths is brutal. In the more optimistic scenario, mortgage rates could settle in the 5.0-5.5% range, limiting the increase in repayments to roughly £150-£1,050 a year on a typical £250,000 loan versus pre-conflict levels.
“The Bank’s central case, where inflation proves stickier and energy costs fall more slowly, suggests a “higher for longer” environment, with mortgage rates holding roughly where they are now at 5.5-6.0% and annual costs running £1,050–£1,950 above pre-conflict expectations. This is largely what the market currently expects with the swap rates that underpin fixed mortgage costs stabilising around a percentage point higher than before the conflict.”
He added: “For borrowers, there are still ways to limit some of the damage. Most lenders allow you to secure a new deal up to six months before your current fixed rate expires, effectively giving you the option to “lock in” today’s rates as insurance.
“If rates rise, you’re protected and if they fall, you can often switch to a cheaper deal before the new one begins. It’s also worth speaking directly to your broker or lender about flexibility options, such as extending the mortgage term to reduce monthly repayments, although this will increase the total interest paid over the lifetime of the loan.
“In a volatile market, being proactive and keeping options open can make a meaningful difference to borrowing costs.”
Confidence in the housing market is highly sensitive to expectations around mortgage costs, with even small shifts in sentiment influencing whether buyers proceed or pause, according t0 Mary-Lou Press, president of NAEA Propertymark.
She said: “Affordability calculations are now central to almost every transaction, with buyers increasingly cautious and reassessing budgets multiple times before making offers. This is particularly evident among first-time buyers, where changes in monthly repayments can quickly alter purchasing decisions.
“There is also a growing tendency for buyers to move early to secure mortgage deals ahead of uncertainty, rather than waiting until existing products expire. However, where confidence weakens, transactions tend to slow, with longer decision-making times and increased risk of fall-throughs.
“It is not only actual rate movements but expectations of future costs that are shaping activity. In this environment, uncertainty around inflation and interest rates is having a direct cooling effect on market momentum and housing mobility.
“Regionally, this varies, with some areas showing greater resilience in demand while others are more sensitive to shifts in affordability and buyer confidence.”
