Most people understand that war affects oil prices. Fewer people realise it’s now directly affecting their monthly mortgage payment.
The average 30-year fixed mortgage rate in the US hit 6.43% on April 30, up from around 5.8% before the Iran war began in late February. In the UK, the Bank of England held rates at 3.75% on April 30, but investors have now fully priced in a rate hike in July, another in September, and a small chance of a third by year end – a complete reversal from the rate cut expectations that existed before the war.
Here’s exactly how a conflict in the Middle East ends up on your monthly mortgage statement.
The Chain Reaction
It starts with oil. The Strait of Hormuz has been effectively closed for two months. 20% of the world’s oil supply flows through that waterway. With it restricted, oil prices surged above $100 a barrel and stayed there.
When oil prices rise, energy costs rise across the entire economy. Transport, manufacturing, heating, food production – everything that relies on energy gets more expensive. That feeds directly into inflation.
The March CPI reading came in at 3.3% year over year — the fastest pace since April 2024. Put simply, higher oil prices mean higher inflation, and higher inflation means higher interest rates.
That’s the chain. War in the Middle East – oil above $100 – inflation at 3.3% – central banks on hold – your mortgage costs more.
Rightmove’s mortgage expert explained it clearly: ‘Ongoing geopolitical uncertainty has made financial markets more volatile. That volatility feeds into swap rates, which are the underlying costs lenders use to price fixed-rate mortgages. As a result, some mortgage rates have increased this month, even though the Bank Rate itself hasn’t changed.’
What the Numbers Mean on an Average Property
This is where it becomes real money.
The average UK house price is around £300,000. Before the war, the average two-year fixed rate was 4.85% and the average five-year fix was 4.94%. Both have since moved higher as lenders priced in the war premium.
Here’s what that looks like in pounds on a £300,000 mortgage over 25 years:
At 4.85% – monthly payment approximately £1,710. Total interest paid over 25 years: approximately £213,000.At 5.5% – monthly payment approximately £1,835. Total interest paid over 25 years: approximately £250,000.
At 6% – monthly payment approximately £1,933. Total interest paid over 25 years: approximately £280,000.
That’s a difference of over £220 per month between the pre-war rate environment and where rates are heading now. Over a year that’s £2,640. Over the life of the mortgage it’s £67,000 in additional interest.
In the US, on the average home price of around $420,000 with a 20% deposit:
At 5.8% – monthly payment approximately $1,975.
At 6.43% – monthly payment approximately $2,098.
That’s $123 more per month. $1,476 per year. $44,280 over a 30-year mortgage. All of that additional cost traces directly back to the Strait of Hormuz.
Who Is Feeling This Most
Around 1.3 million UK households are facing a jump in their mortgage payments by the end of 2028 as a result of the war in the Middle East, according to the Bank of England’s Financial Stability Committee.
UK Finance forecasts 1.8 million fixed-rate mortgages will expire in 2026 alone. Every single one of those households is remortgaging into a rate environment made worse by the Iran war. People who locked in at 2% or 3% during the low-rate era of 2020 to 2022 are now facing rates more than double what they’ve been paying.
First-time buyers are hit hardest. They don’t have equity to offset higher borrowing costs. Every increase in the monthly payment directly reduces what they can afford to borrow – which pushes them further down the property ladder or out of the market entirely.
Why This Specifically Affects Fixed Rate Deals
Here’s something most people don’t understand. Fixed-rate mortgages are priced off swap rates – the interest rates that banks charge each other for borrowing – not directly off the Bank of England base rate.
That means even when the Bank of England holds rates steady, fixed mortgage deals can still get more expensive. And that’s exactly what’s been happening since the war began. The Bank ofEngland hasn’t moved rates. Swap rates have moved because of geopolitical uncertainty. And that’s pushed fixed-rate mortgage costs higher without the central bank doing anything.
L&C; mortgage adviser David Hollingworth said: ‘No one will be surprised to see the impact of the Iran conflict feeding into a higher rate of inflation, driven largely by the increase in the cost of oil. Mortgage borrowers are already well aware of the consequence of that inflationary pressure as fixed rates have spiked since the beginning of the war.’The Worst Case Scenario
Yesterday Trump rejected Iran’s proposal to reopen the Strait and confirmed the naval blockade will continue indefinitely. Iran’s parliament speaker responded by saying oil is heading to $140 a barrel.
At $140 oil, inflation doesn’t ease – it accelerates. Investors have already priced in a Bank of England rate hike in July. If oil pushes toward $140 and inflation climbs further, the Bank could be forced into a series of hikes that could push mortgage rates significantly above where they are today.
In the US the scenario is the same. The Fed is already on hold. A further oil spike means more inflation, more pressure to raise rather than cut rates, and mortgage costs climbing further.
What You Should Actually Do
If you’re buying now, don’t try to time the market. If the numbers work at today’s rates, the deal makes sense. Waiting for rates to fall is a bet on a geopolitical outcome nobody can predict.
If your fixed rate deal expires in the next six months, speak to a broker now. You can lock in a rate up to six months in advance in most cases. If rates fall before you complete, you switch to the lower rate. If they rise further, you’re protected.
If you’re on a variable or tracker rate, consider whether locking in now makes sense given the risk of further hikes. A tracker mortgage rises directly with the base rate – if the Bank of England hikes in July as investors expect, your payment goes up the following month automatically.
The Bottom Line
The Iran war isn’t just a geopolitical event. It’s a financial event directly affecting your monthly payment, your borrowing power, and your ability to buy or move home.
The average UK house price is £300,000. The average five-year fixed rate was under 5% at the start of February. Every week the Strait stays closed, the prospect of getting back to those rates gets harder.
