UK Interest Rates Could Rise Amid Iran War Turmoil — Here's What Homeowners and Buyers Need to Know

Escalating conflict in the Middle East is upending mortgage rate expectations — and expert brokers like Mortgage Tree can help you navigate what comes next.

UK interest rates could rise following the market turmoil triggered by the Iran war, industry experts are warning — a development that has significant implications for homeowners, those remortgaging, and first-time buyers across the country.

Chancellor Rachel Reeves issued a stark warning this week, cautioning that escalating conflict in West Asia is likely to push inflation higher as oil and gas prices remain elevated. "The economic impact of the situation in the Middle East will depend on its severity and its duration," she said. "The movements that we have already seen are likely to put upward pressure on inflation in the coming months."

Inflation Forecasts Revised Upward

The British Chamber of Commerce has revised its CPI inflation forecast upward to 2.7% by year-end, abandoning its previous prediction of 2.1% — a meaningful shift that signals a tougher economic environment ahead for borrowers.

As a direct consequence, the Bank of England is now widely expected to hold interest rates rather than cut them, reversing earlier hopes of two reductions this year. Markets have dramatically repriced expectations: just two weeks ago, there was an 80% probability of a rate cut at the Bank's next meeting. That figure has collapsed to just 20%.

More worryingly, some industry experts now predict that after holding rates steady through 2026, there could even be a rise towards the end of the year or into 2027. The National Institute of Economic and Social Research (NIESR) warns that a prolonged energy price shock could push rates above 4%, up from the current 3.75%.

Why This Matters for Your Mortgage

For anyone on a tracker or variable-rate mortgage, or approaching the end of a fixed-rate deal, the shifting rate outlook makes it more important than ever to review your options now — before the market moves further against you.

This is precisely where Mortgage Tree can make a real difference. As an independent mortgage broker, Mortgage Tree has access to thousands of deals across the whole of the market, including exclusive rates not available directly to consumers. In a volatile environment where the difference between the right and wrong mortgage product could cost thousands of pounds over the term, having an expert in your corner matters enormously.

What the Experts Are Saying

Daniela Hathorn, senior market analyst at Capital.com, explained the mechanism driving the shift: global oil and gas supply disruptions — particularly around the Strait of Hormuz — have driven oil close to four-year highs and pushed UK energy costs sharply higher. This raises the risk that inflation may rebound or prove more persistent than previously expected, potentially slowing or reversing the anticipated easing cycle.

"Traders have significantly reduced bets on imminent rate cuts and shifted toward pricing in a hold or even an eventual increase above the current 3.75% level," Hathorn noted, though she added that the most likely immediate outcome remains a pause in cuts rather than an outright hike — with all future decisions contingent on incoming inflation data and the evolving geopolitical situation.

Don't Wait — Get Expert Advice Now

In uncertain times like these, one thing is clear: sitting on the wrong mortgage deal is a costly mistake. Whether you're a first-time buyer trying to understand what you can afford, a homeowner coming off a fixed rate, or a landlord reassessing your buy-to-let portfolio, the landscape has shifted significantly in a matter of weeks.

Mortgage Tree's team of experienced brokers will search the market on your behalf, explain your options in plain English, and help you secure the best available deal for your circumstances — giving you certainty and peace of mind even as the wider economic picture remains turbulent.

Don't leave your mortgage to chance. Contact Mortgage Tree today and let our experts do the hard work for you.