The US-Israel war on Iran could end up increasing monthly mortgage payments for more than one million more UK households, the Bank of England has predicted, adding that the conflict had dealt “a substantial negative supply shock” to the world economy.

Financial market jitters over the conflict in the Middle East have resulted in banks pulling about 1,500 mortgage products, with many banks raising interest rates on their remaining 7,000 home loan products in recent weeks, the Bank’s financial policy committee (FPC) said.

The increases, named “Trumpflation” after the US president, have put pressure on households preparing to sign on to new mortgage contracts, with the Bank now forecasting that about 5.2 million borrowers – or roughly 58% of borrowers across the country – could face higher mortgage payments by the end of 2028.

That compares with 3.9 million before the conflict began, adding 1.3 million borrowers to the list of households that could have their finances squeezed.

The data provider Moneyfacts reported on Wednesday that the average two-year fixed residential mortgage rate was now 5.84%, up from 4.83% at the start of March.

Caitlyn Eastell, a personal finance analyst at Moneyfacts, said: “It has been just over a month since the start of the Middle East conflict, and the impact on borrowers has been almost immediate as borrowing costs sharply rose.”

The FPC said that a prolonged war increased the possibility of “large, frequent and possibly overlapping shocks” that could put global financial stability at risk.

Overall, the UK’s economic outlook had deteriorated, increasing pressure on households and businesses, the FPC said. It added that a prolonged conflict could end up amplifying risks that were bubbling up before the conflict began, including pressures on government debt markets, exceptionally high valuations of AI companies, and risky loans arranged by private credit firms operating outside the regulated banking system.

“The conflict in the Middle East has resulted in a substantial negative supply shock to the global economy,” the FPC said. “The financial system has been resilient so far.”

However, the committee added: “The conflict has made the global environment materially more unpredictable and followed a period in which global risks were already elevated. This increases the possibility of large, frequent and potentially overlapping shocks and periods of intense volatility.”

The potential for multiple, simultaneous shocks, it said, could end up “amplifying their effect on financial stability and ultimately, the provision of vital financial services to UK households and businesses”.

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