Bank of England: Mortgages rising at fastest known rate in the G7

Bank of England: Mortgages rising at fastest known rate in the G7

Tue, September 8, 2026 at 8:40 PM GMT+3 2 min read

Britain's homeowners have suffered what is thought to be the biggest increase in mortgage rates in the rich world since the war in Iran began.

Andrew Bailey, the Governor of the Bank of England, said borrowing costs had risen rapidly even as officials kept the base rate of interest on hold.

"UK mortgage rates typically are about 75 basis points, 0.75 percentage points, higher than they were at the point the conflict broke out," Mr Bailey said.

"I think with the possible exception of Japan, though that is a little hard to map, that is the largest increase in mortgage rates in the G7. We have seen a tightening of financial conditions.

"Obviously that will affect individual families."

A typical five-year fixed-rate mortgage now costs 5.7pc, according to Moneyfacts, up from 4.95pc before the war began.

It means a household with a £250,000 mortgage during a 25-year term faces paying around £1,565 a month if they fix today. That is £110 a month more than if they had locked in the cheaper rates available in February.

Mr Bailey said higher borrowing costs reflected the risks that the war in Iran spreads inflation throughout the economy and forced the Bank to raise interest rates. As financial markets worry about this possibility, mortgage borrowers are paying the cost.

"The risks [to inflation] are on the upside," the Governor conceded, leading to an expensive "risk premium" in the cost of borrowing.

"The conflict is still going on. It is also causing a high level of energy prices and also quite a bit of volatility in energy prices. That volatility is feeding through to financial markets, and nearly all of that volatility you can trace back to events in the Gulf," Mr Bailey told the Treasury select committee.

"We have got higher energy prices. They could be higher still. The Strait [of Hormuz] remains closed."

Inflation currently stands at 2.9pc, above the Bank's 2pc target. The nine-strong Monetary Policy Committee, chaired by Mr Bailey, meets next week to vote on interest rates.

At July's meeting, six officials voted to hold rates at 3.75pc, while three backed a rise to 4pc.

Traders in financial markets expect another hold next week, but are pricing one increase to 4pc by the end of the year.

They are then betting as many as two more rate rises next year to take borrowing costs as high as 4.5pc by September of 2027.

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