Andrew Warren
One million extra homeowners will face higher mortgage bills over the next two years because of Donald Trump's Iran war, according to the Bank of England, which now estimates five million households will see repayments rise when they remortgage, up from the four million it projected back in December.
At a Glance
- Two year fixed mortgage rates have climbed from 4.2pc in December to 4.92pc now, the Bank says.
- Five million households face higher repayments over the next two years, up from a December estimate of four million.
- 750,000 families remortgaging by December face an average monthly rise of £170.
- Households rolling off fixed deals over the next two years face a more modest average rise of £45 a month.
- The Bank is also flagging hedge fund leverage in AI stocks and rising cyber risk to the financial system.
Why One Million Extra Households Are Exposed
The revision from four million to five million households reflects how quickly borrowing costs moved after the conflict escalated. Two year fixed rates jumped from 4.2pc to 4.92pc, a shift of more than 70 basis points in a matter of months, and that repricing is now working its way through the remortgage pipeline. Anyone locked into a low fixed rate taken out several years ago is rolling into a market that looks materially different from the one they left.
The Bank's framing is straightforward: this is a rate shock transmitted through the housing finance system, not a gradual drift. Households that fixed before 2022, when rates sat below 3pc, are the most exposed group because the gap between their old deal and current pricing is widest.
The £170 Problem Facing This Year's Remortgagors
Roughly 750,000 families who took out mortgages before 2022 must remortgage by December and face an average increase of £170 a month, a figure the Bank itself has flagged as a particularly severe outcome. That compares with a broader, gentler £45 a month rise facing households rolling off fixed deals more gradually over the next two years. The disparity comes down to timing: those refinancing this year are jumping straight from sub 3pc deals into a market close to 5pc, while others have more time for rates to potentially ease.
For a household with a typical mortgage balance, £170 a month is not a marginal adjustment. It is the kind of figure that reshapes discretionary spending, and it lands at a moment when the incoming government is already under scrutiny over living costs.
Political Pressure Builds on Andy Burnham
Andy Burnham, described as the presumptive prime minister, inherits this mortgage stress just as he takes office. He has built part of his platform around lowering the cost of living, and the Bank's warning complicates that pitch almost immediately. Mortgage costs sit largely outside a prime minister's direct control, tied instead to gilt yields, Bank Rate expectations and global risk sentiment, yet the political cost of rising bills tends to land on whoever is in Downing Street regardless of causation.
The Iran conflict has reportedly wound down, but mortgage rates have not fully retraced. That lag between geopolitical de-escalation and financial market normalization is itself notable, and it suggests markets are pricing in either persistent risk premia or broader inflation concerns that outlast the immediate conflict.
Hedge Fund Leverage and the AI Valuation Question
Separately, the Bank's Financial Policy Committee is warning that hedge funds are using substantial borrowed capital to amplify positions in AI related equities, a dynamic it says has produced a
