Around 1.3 million UK homeowners could face higher mortgage payments by the end of 2028, according to the Bank of England, as global instability continues to affect borrowing costs.

In its latest assessment of economic risks, the Bank said a wider “shock” to the global economy, driven in part by the ongoing conflict in the Middle East, is likely to keep inflationary pressures elevated. As a result, interest rates may remain higher for longer than previously expected.

The number of households expected to see mortgage costs rise has increased to 5.2m over the next two and a half years, up from earlier forecasts of 3.9m. Despite this, the Bank stressed that any increases are likely to be modest compared with the sharp rises seen following the 2022 mini-budget.

Energy prices have climbed since the escalation of the conflict, pushing up both inflation and the cost of Government borrowing. This has weakened the UK’s economic outlook and could further strain household finances, particularly if higher costs persist.

Mortgage rates have already begun to edge up, with some of the most competitive deals withdrawn. As of 1 April, the average two-year fixed rate stood at 5.84%, while the average five-year rate was 5.75%.

While financial markets are pricing in potential rate rises this year, the Bank’s governor has suggested those expectations may be premature.

Even so, higher borrowing costs and energy prices are expected to weigh on housing affordability, potentially slowing property market activity.

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