War in Iran is beginning to impact on household costs in the UK, writes DARREN POLSON
The intensifying Middle East conflict is first and foremost a humanitarian crisis for the region. Communities across Iran and neighbouring states now face the daily uncertainty of further escalation, with this rightly dominating international attention.
For the UK, the consequences could soon reach households, with increases in fuel costs, inflation rises and a potential impact on mortgage interest rates.
Economists in the UK assessing the potential economic impacts are focusing on one transmission channel above all others: energy prices. Oil and gas costs move rapidly through the global economy, influencing inflation, bank policy and the mortgage rates faced by millions of households.
At the beginning of 2026, Britain’s mortgage market had begun to stabilise after the turbulence of recent years. The base rate set by the Bank of England currently sits at 3.75%, while average two-year fixed mortgage rates are 4.7%, with five-year fixes near 4.9%.
At an event that I attended in late 2025, a chief economist from a major high street lender predicted that we would see three or four rate cuts in 2026, bringing the base rate to 3%. However, rising geopolitical tensions and volatility in global energy markets are complicating that outlook.
Mortgage lenders such as Nationwide Building Society, Barclays and Halifax have already begun adjusting pricing and, in some cases, temporarily withdrawing products as market expectations shift. Economists now outline three possible paths for energy markets and the global economy, depending on the length of the conflict.
If it proves to be a short-lived conflict, we will see energy markets stabilise quickly, with oil prices lower. This would mean that inflation would remain consistent with existing forecasts, allowing the Bank of England to continue gradually easing rates. The impact on mortgage rates and swap rates would be minimal.
A longer-term conflict would mean more disruption. This would also result in higher inflation through fuel, energy and transport costs. Businesses facing rising operating expenses would pass some of those costs on to consumers, slowing progress toward the Bank of England 2% inflation target. This would also result in an immediate pause to any rate cuts, potentially impacting mortgage rates, or at least slowing any reductions.
A prolonged conflict would be the most disruptive scenario, involving sustained damage to energy production. The UK would face an inflation increase across energy, food and transport. In this scenario, the Bank of England may need to raise interest rates to prevent inflation becoming too high. In mortgages, this would almost certainly move rates back above 5%, possibly 6%, reversing much of the progress seen.
The UK mortgage market is impacted heavily as most mortgages are fixed for relatively short periods, typically two or five years. For the 1.8 million UK households whose mortgage deal is ending in 2026, the above will be crucial to whether their mortgage payments will increase or decrease (which also has an impact on the UK economy as spending power is reduced).
Economists and mortgage lenders are now watching closely as geopolitical developments continue.
Our advice to anyone currently exploring their mortgage or remortgage options would be to act early and speak to an adviser who can help you secure the best deal for your circumstances.
Darren Polson is head of mortgage operations at Aberdein Considine
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