The Bank of England published its Financial Policy Committee Record this morning. If you’ve seen the headlines, you’ll know the number: 1.3 million additional households now facing higher mortgage costs because of the conflict in the Middle East.
That’s the number that made the front pages. But the report itself tells a far more interesting story than the headlines suggest.
The actual picture
Let’s start with what the FPC actually said. Before the conflict kicked off at the end of February, the Bank expected around 3.9 million mortgagors to face increased repayments by the end of 2028. That number has now jumped to 5.2 million, roughly 58% of all mortgage holders. The difference, that 1.3 million, comes almost entirely from the upward shift in swap rates since the conflict began.
Two-year fixed rates have risen by an estimated 80 basis points. Five-year fixes by around 70. The total number of mortgage products on the market has dropped from about 8,500 to 7,000. That’s a meaningful contraction, though the FPC is keen to point out it’s nowhere near the levels we saw during the gilt market stress of 2022 or the initial Covid lockdown.
And here’s where it gets nuanced. The Bank’s own language is careful: typical increases in mortgage payments would “remain modest” compared to recent years, because most borrowers are already on higher rates. The shock of going from sub-2% to 5%+ has already happened for millions of households. This is more of a squeeze than a cliff edge.
What’s driving the squeeze
The mechanics are straightforward enough. Shipping through the Strait of Hormuz has effectively ceased. Energy production in the Gulf has fallen, partly because of attacks on infrastructure that could take a long time to repair. Oil prices have been fluctuating above $100 a barrel, more than 60% above pre-conflict levels. UK natural gas prices are up over 70%, though still well below the 2022 peaks after Russia’s invasion of Ukraine.
That’s a negative supply shock. Higher energy costs feed through to inflation expectations, which push up gilt yields, which push up swap rates, which push up mortgage pricing. The transmission mechanism is textbook, and it’s already working.
UK 10-year gilt yields have risen 74 basis points since the conflict began. Two-year yields are up 100 basis points. Some of that move has been amplified by hedge fund deleveraging at the short end of the curve, a detail buried in the report that matters more than it might seem. When leveraged positions unwind in government bond markets, the moves can be sharp and self-reinforcing.
The bit the headlines missed
The mortgage numbers grabbed attention, but the FPC’s real concern runs deeper. This report reads as a warning about the interaction between multiple vulnerabilities hitting at the same time.
Private credit markets were already under pressure before the conflict started. Investor sentiment had worsened, redemption requests were elevated across several retail funds, and some had started limiting withdrawals. The high-profile default of Market Financial Solutions Limited in February, a non-bank mortgage lender partly funded by private credit, underlined weaknesses the FPC had been flagging for months.
Now layer on the supply shock. Higher interest rates increase debt-servicing pressures for leveraged borrowers. Lower growth reduces asset quality. Energy-intensive industries face particular strain. Around a quarter of leveraged loans and private credit loans are due for refinancing by the end of 2027, leaving those borrowers exposed to exactly the kind of tightening we’re now seeing.
For mortgage brokers, the private credit angle matters because it affects the non-bank lending landscape. When private credit funds come under pressure, their willingness to refinance or extend new lending shrinks. That feeds through to product availability and pricing in corners of the market that serve borrowers the mainstream lenders don’t always reach.
What the Bank isn’t saying (but is clearly thinking)
The FPC kept the countercyclical capital buffer at 2%. It says banks are well capitalised, liquid, and not restricting lending to protect capital positions. The stress test results from 2025 showed the banking system could handle a severe supply shock. All reassuring.
But read between the lines and the tone is cautious. The phrase “materially more unpredictable global environment” appears repeatedly. The Committee explicitly warns that heightened uncertainty makes it harder for markets to price fundamentals, increasing the chance of sharp moves on new information. Market contacts told the Bank they expect the conflict to be short-lived, but the FPC clearly isn’t banking on that assumption.
There’s also an interesting section on AI company valuations. The FPC flags the energy-intensive nature of AI supply chains and data centres as a specific vulnerability in the context of an energy shock. Supply chain disruption for key input chemicals could bottleneck AI infrastructure buildout. It’s a connection most mortgage professionals won’t have considered, but if AI valuations correct sharply, that tightens funding conditions more broadly, including for UK corporates.
So where does this leave us?
The honest answer is that it depends on what happens next in the Gulf. The FPC is explicit about this: the ultimate impact on financial stability will depend on the duration, scale, and repercussions of the conflict. If market contacts are right and it’s short-lived, the mortgage rate increases may prove temporary. If it drags on, or escalates, the interaction between energy prices, gilt yields, private credit stress, and household finances gets considerably more uncomfortable.
What’s clear is that the 1.3 million number, while headline-worthy, is only one piece of a much larger puzzle. The real question isn’t how many households face higher payments. It’s whether the financial system can absorb overlapping shocks without amplifying them. The FPC thinks it can, for now. But “for now” is doing a lot of heavy lifting in that sentence.
Source: Bank of England Financial Policy Committee Record, April 2026
