Mortgage costs could rise significantly in scenarios of sustained inflation driven by geopolitical tensions and energy price pressures, latest analysis moneyfacts Gives suggestions.
Based on more than 30 years of historical data, its Interest Division found that mortgage rates are typically around 1.5% to 1.75% above the Bank of England base rate, meaning that changes in monetary policy can rapidly increase 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%, bringing the average mortgage rate to around 6.75%.
On a typical £250,000 repayment mortgage over 25 years, this would equate to monthly repayments of around £1,727, or £20,724 annually, an increase of around £3,380 compared to pre-shock levels.
· Scenario A (more benign): Energy prices are falling sharply, CPI has peaked at 3.6% this year and will fall below 3% next autumn – mortgage rates are likely to drop soon.
· Scenario B (central case): Energy prices fall more slowly, inflation reaches 3.7% and remains high for a longer period. Markets currently see this as the most likely path, meaning mortgage rates stabilize around their current levels with only minor upward pressure.
· Scenario C (worst-case scenario): Oil remains above $120, inflation peaks at 6.2%, and the base rate could rise to 5.25% – with the average mortgage rate moving toward 6.75%.
| landscape | inflation outlook | Energy/Oil Concept | base rate implications | EST. mortgage rate | Monthly Repayment (£250k / 25 years) | annual cost | change vs pre-conflict |
| pre-conflict baseline | 2% trajectory | lower, stable | 3.75% (with expected cuts) | 4.89% | £1,445.50 | £17,346 | — |
| 1 may | is increasing | oil increased | 3.75% (no expectation of cut) | 5.66% | £1,559.20 | £18,710 | +£1,350/year |
| Scenario A (mild) | peak 3.6%, decline <3% | prices fell back | Stability with quick cut | 5.0–5.5% | £1,460 – £1,535 | £17,500 – £18,400 | +£150 – £1,050/year |
| Scenario B (central) | Peak 3.7%, remains high | high for long and slow fall | higher for longer | 5.5-6.0% | £1,535 – £1,610 | £18,400 – £19,300 | +£1,050 – £1,950/year |
| Scenario C (worst case) | peak 6.2% | Oil remains at >$120 | up to 5.25% | 6.75% | £1,727 | £20,724 | +£3,380/year |
Estimated borrowing of £250,000 over 25 years. Source: Interest from Moneyfacts
Adam French, head of consumer finance at MoneyFacts, said: “The Bank of EnglandtrumpflationThe tension scenarios illustrate how damaging the economic impact of the Iran conflict could be.
“At one end, a relatively benign path would lead to a sharp decline in energy prices, with inflation peaking at around 3.6% next year before falling below target. On the other, a longer period of high oil prices could push inflation to 6.2%, forcing central banks’ rate setters to respond more aggressively.
“For borrowers, the difference between those paths is brutal. In a more optimistic scenario, mortgage rates could settle in the 5.0-5.5% range, which could limit the increase in repayments to around £150-£1,050 per year compared to pre-conflict levels on a typical £250,000 loan.
“The Bank’s central case, where inflation proves stable and energy costs fall more slowly, suggests a “higher for longer” environment, with mortgage rates at around 5.5-6.0% and annual costs running £1,050-£1,950 above pre-conflict expectations. The market currently expects the same with swap rates around one percentage point higher than pre-conflict stable mortgages. Stabilizes costs.”
He added: “For borrowers, there are still ways to limit the losses to some extent. 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 deals come in. It’s also worth speaking directly to your broker or lender about flexibility options, such as extending the mortgage term to reduce monthly payments, 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 the cost of borrowing.”
According to T. Marie-Lou Press, president of NAEA PropertyMark, confidence in the housing market is highly sensitive to expectations related to mortgage costs, with even small changes in sentiment influencing whether buyers move forward or stay.
She said: “Affordability calculations are now central to almost every transaction, with buyers becoming increasingly cautious and reevaluating budgets multiple times before making an offer. This is particularly evident among first-time buyers, where changes in monthly payments can quickly alter purchase decisions.
“There is an increasing tendency for buyers to move early to secure mortgage deals before uncertainty sets in, rather than waiting until existing products are exhausted. However, where confidence is weak, transactions slow down, decisions take longer and the risk of decline increases.
“It is not only real rate fluctuations but also expectations of future costs that are shaping activity. In this environment, uncertainty around inflation and interest rates is having a direct chilling effect on market momentum and housing dynamics.
“regionally, this varies, with some areas showing greater resilience in demand while others are more sensitive to changes in affordability and buyer confidence.”