Analysis of more than 30 years of historic rates data by, INTEREST by Moneyfacts, has found that mortgage rates typically sit 1.5–1.75 percentage points above base rate, reinforcing the risk of significantly higher borrowing costs in the worst case scenario.
- Scenario A (more benign): Energy prices ease quickly, CPI peaks at 3.6% this year and falls below 3% next autumn – mortgage rates likely to edge down sooner.
- Scenario B (central case): Energy prices fall more slowly, inflation reaches 3.7% and stays higher for longer. Markets currently view this as the most likely path, implying mortgage rates stabilise around their current levels with only modest upward pressure.
- Scenario C (worst case): Oil remains above $120, inflation peaks at 6.2%, and rates could rise to 5.25% – pushing mortgage rates towards 6.75%.
|
Scenario
|
Inflation outlook
|
Energy/oil assumption
|
Base Rate implication
|
Est. mortgage rate
|
Monthly repayment (£250k / 25y)
|
Annual cost
|
Change vs pre-conflict
|
|
Pre-conflict baseline
|
2% trajectory
|
Lower, stable
|
3.75% (with cuts expected)
|
4.89%
|
£1,445.50
|
£17,346
|
—
|
|
1 May
|
Rising
|
Oil elevated
|
3.75% (no expectation of cuts)
|
5.66%
|
£1,559.20
|
£18,710
|
+£1,350 / year
|
|
Scenario A (benign)
|
Peaks 3.6%, falls <3%
|
Prices fall back
|
Stability with cuts sooner
|
5.0–5.5%
|
£1,460 – £1,535
|
£17,500 – £18,400
|
+£150 - £1,050 / year
|
|
Scenario B (central)
|
Peaks 3.7%, stays elevated
|
Slower energy decline
|
Higher for longer
|
5.5–6.0%
|
£1,535 – £1,610
|
£18,400 – £19,300
|
+£1,050 – £1,950 / year
|
|
Scenario C (worst case)
|
Peaks 6.2%
|
Oil >$120 sustained
|
Up to 5.25%
|
6.75%
|
£1,727
|
£20,724
|
+£3,380 / year
|
|
Assumed borrowing of £250,000 over 25 years. Source: INTEREST by Moneyfacts
|
Adam French, Head of Consumer Finance at Moneyfacts, said:
“The Bank of England’s “Trumpflation” stress scenarios lay bare just how damaging the economic repercussion of the Iran conflict could become. At one end, a relatively benign path would see energy prices ease quickly, with inflation peaking at around 3.6% before falling back below target next year. At the other, a prolonged period of elevated oil prices could drive inflation as high as 6.2%, forcing a much more aggressive response from the central banks rate setters.
“For borrowers, the difference between those paths is brutal. In the more optimistic scenario, mortgage rates could settle in the 5.0-5.5% range, limiting the increase in repayments to roughly £150-£1,050 a year on a typical £250,000 loan versus pre-conflict levels. The Bank’s central case, where inflation proves stickier and energy costs fall more slowly, suggests a “higher for longer” environment, with mortgage rates holding roughly where they are now at 5.5-6.0% and annual costs running £1,050–£1,950 above pre-conflict expectations. This is largely what the market currently expects with the swap rates that underpin fixed mortgage costs stabilising around a percentage point higher than before the conflict.
“The real danger for needing to borrow or refinance is in the worst case scenario. If oil prices remain above $120 and inflation surges, base rate expectations could move sharply towards 5.25%. Historical analysis from INTEREST by Moneyfacts shows mortgage rates typically sit around 1.5 to 1.75 percentage points above Base Rate, which would put average borrowing costs over 6.5%. That would translate into an increase of more than £3,000 a year for many borrowers - a devastating hit to affordability.
“For borrowers, there are still ways to limit some of the damage. 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 one begins. It’s also worth speaking directly to your broker or lender about flexibility options, such as extending the mortgage term to reduce monthly repayments, 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 borrowing costs.”
- ENDS
Read more in the latest issue of the INTEREST journal, which you can read for free here. Part or all this press release can be reproduced, so long as we are sufficiently sourced.
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
Analysis of more than 30 years of historic rates data by, INTEREST by Moneyfacts, has found that mortgage rates typically sit 1.5–1.75 percentage points above base rate, reinforcing the risk of significantly higher borrowing costs in the worst case scenario.
- Scenario A (more benign): Energy prices ease quickly, CPI peaks at 3.6% this year and falls below 3% next autumn – mortgage rates likely to edge down sooner.
- Scenario B (central case): Energy prices fall more slowly, inflation reaches 3.7% and stays higher for longer. Markets currently view this as the most likely path, implying mortgage rates stabilise around their current levels with only modest upward pressure.
- Scenario C (worst case): Oil remains above $120, inflation peaks at 6.2%, and rates could rise to 5.25% – pushing mortgage rates towards 6.75%.
|
Scenario
|
Inflation outlook
|
Energy/oil assumption
|
Base Rate implication
|
Est. mortgage rate
|
Monthly repayment (£250k / 25y)
|
Annual cost
|
Change vs pre-conflict
|
|
Pre-conflict baseline
|
2% trajectory
|
Lower, stable
|
3.75% (with cuts expected)
|
4.89%
|
£1,445.50
|
£17,346
|
—
|
|
1 May
|
Rising
|
Oil elevated
|
3.75% (no expectation of cuts)
|
5.66%
|
£1,559.20
|
£18,710
|
+£1,350 / year
|
|
Scenario A (benign)
|
Peaks 3.6%, falls <3%
|
Prices fall back
|
Stability with cuts sooner
|
5.0–5.5%
|
£1,460 – £1,535
|
£17,500 – £18,400
|
+£150 - £1,050 / year
|
|
Scenario B (central)
|
Peaks 3.7%, stays elevated
|
Slower energy decline
|
Higher for longer
|
5.5–6.0%
|
£1,535 – £1,610
|
£18,400 – £19,300
|
+£1,050 – £1,950 / year
|
|
Scenario C (worst case)
|
Peaks 6.2%
|
Oil >$120 sustained
|
Up to 5.25%
|
6.75%
|
£1,727
|
£20,724
|
+£3,380 / year
|
|
Assumed borrowing of £250,000 over 25 years. Source: INTEREST by Moneyfacts
|
Adam French, Head of Consumer Finance at Moneyfacts, said:
“The Bank of England’s “Trumpflation” stress scenarios lay bare just how damaging the economic repercussion of the Iran conflict could become. At one end, a relatively benign path would see energy prices ease quickly, with inflation peaking at around 3.6% before falling back below target next year. At the other, a prolonged period of elevated oil prices could drive inflation as high as 6.2%, forcing a much more aggressive response from the central banks rate setters.
“For borrowers, the difference between those paths is brutal. In the more optimistic scenario, mortgage rates could settle in the 5.0-5.5% range, limiting the increase in repayments to roughly £150-£1,050 a year on a typical £250,000 loan versus pre-conflict levels. The Bank’s central case, where inflation proves stickier and energy costs fall more slowly, suggests a “higher for longer” environment, with mortgage rates holding roughly where they are now at 5.5-6.0% and annual costs running £1,050–£1,950 above pre-conflict expectations. This is largely what the market currently expects with the swap rates that underpin fixed mortgage costs stabilising around a percentage point higher than before the conflict.
“The real danger for needing to borrow or refinance is in the worst case scenario. If oil prices remain above $120 and inflation surges, base rate expectations could move sharply towards 5.25%. Historical analysis from INTEREST by Moneyfacts shows mortgage rates typically sit around 1.5 to 1.75 percentage points above Base Rate, which would put average borrowing costs over 6.5%. That would translate into an increase of more than £3,000 a year for many borrowers - a devastating hit to affordability.
“For borrowers, there are still ways to limit some of the damage. 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 one begins. It’s also worth speaking directly to your broker or lender about flexibility options, such as extending the mortgage term to reduce monthly repayments, 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 borrowing costs.”
- ENDS
Read more in the latest issue of the INTEREST journal, which you can read for free here. Part or all this press release can be reproduced, so long as we are sufficiently sourced.
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
