The Iran war mortgage impact has proved more damaging to British household finances than the Bank of England anticipated just seven months ago, with forecasts now showing that just over five million homeowners face higher monthly repayments by the end of 2028.
That is a million more than the four million projected in the Bank’s December 2025 Financial Stability Report. The revision lands in the July 2026 edition of that report, published by the Financial Policy Committee (FPC), which assesses the resilience of the UK financial system twice a year.
How the Iran war mortgage impact is reshaping repayment forecasts
The headline numbers tell one story; the detail tells another. A typical owner-occupier rolling off a fixed-rate deal in the next two years faces a rise of £45 a month in repayments. Uncomfortable, but a long way from the £120 a month typical increase endured by borrowers who remortgaged between the end of 2022 and the end of 2024.
The more exposed cohort is the 750,000 homeowners currently paying less than 3% interest. They roll off those deals this year and face an average rise of £170 a month, according to the Bank. That is not a rounding error; it is a material shock to household cash flow for people who locked in at historically low rates and have not yet confronted the new environment.
The broader rate picture has also shifted. According to PA Media’s reporting on the FSR, the average mortgage rate facing households rolling off fixed deals is now 0.72 percentage points higher than it was at the time of the Bank’s December report. That increment, modest in isolation, compounds across millions of borrowers.
More than eight in ten mortgage customers hold fixed-rate deals. The mechanics are simple: the rate is locked until the deal expires, typically after two or five years, at which point borrowers choose a replacement. More than two million of those borrowers on two-year fixes expiring by end-2028 were previously expected to remortgage close to their existing rate and see little change. The Iran conflict has not necessarily changed the quantum of their increase, but it has removed the prospect of repayments falling, which had been part of the pre-conflict forecast.
My reading of the overall picture is that the Bank is trying to hold two thoughts simultaneously: things are worse than expected, but not as bad as recent history. That framing is defensible. The 2022-to-2024 remortgaging wave was a genuine squeeze. A £45 average increase is not that. But averages can obscure. The 750,000 borrowers facing £170 a month more are not a rounding error in the aggregate, they are real households with real budget constraints.
Wider risks: AI valuations and lower-income households
The FPC report does not confine itself to mortgages. It identifies vulnerabilities in risky asset valuations, sovereign debt markets, and leveraged credit as key concerns for financial stability. AI stock valuations have become, in the Bank’s own words, ‘more stretched’, with the Committee raising concerns about bubble dynamics, a warning it also sounded in December.
The FPC assessed four specific channels through which AI adoption poses risk to financial stability: greater use of AI in core financial decision-making at banks and insurers; greater use in financial markets; operational risks tied to AI service providers; and the evolving cyber threat environment. That last point is where the report is most pointed, warning that rapid advances in AI have heightened the risk of cyber attacks on financial infrastructure.
On households, the report is frank about distributional effects. Lower-income households and renters face greater exposure to higher energy prices because, as the Bank put it directly, ‘they spend a larger share of their income on essentials, limiting their ability to adjust spending in response to higher prices.’
Overall, the FPC judged that household finances remain resilient, with debt levels low relative to historical averages and unlikely to trigger sharp falls in consumer spending. That verdict may prove durable. But it rests on the assumption that the Iran conflict does not escalate further and push rates higher still.
The next FPC report arrives in December. By then, the 750,000 borrowers rolling off sub-3% deals this year will already know whether £170 a month feels manageable. That is the real test of whether ‘resilient’ was the right word.
