A recent analysis suggests that mortgage payments could rise significantly by more than £3,000 annually in a worst-case scenario if costs continue to escalate due to the ongoing Iran conflict.
The conflict has led to an increase in mortgage expenses as lenders have adjusted their rates, anticipating that interest rates will not decrease as previously projected.
Moneyfacts has conducted an analysis based on the Bank of England’s stress test scenarios, predicting potential inflation increases.
Under the best-case scenario with inflation peaking at 3.6% this year and dropping below 3% next autumn, homeowners could face additional costs ranging from £150 to £1,050 per year.
In a moderate scenario where inflation reaches 3.7% and remains elevated, mortgage holders might see an increase of £1,050 to £1,950 annually.
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However, in a worst-case scenario with inflation hitting 6.2%, households could potentially face an extra expense of £3,380 per year.
According to Moneyfacts, the average two-year fixed-rate mortgage has increased from 4.83% in early March to 5.77% at present.
Similarly, the average rate for a five-year mortgage deal has risen from 4.95% to 5.68% during the same period.
Adam French, Head of Consumer Finance at Moneyfacts, highlighted the potential economic impact of the Iran conflict, as revealed by the Bank of England’s ‘Trumpflation’ stress scenarios.
French emphasized the importance of considering locking in a new mortgage deal as a form of “insurance” against future rate hikes.
He advised borrowers to explore options with lenders, such as extending the mortgage term to reduce monthly payments, while acknowledging that this might increase the total interest paid over the loan’s lifetime.
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