Interest rate rise – Iran crisis linked to mortgage costs, new analysis

The analysis finds that monthly changes in oil prices and two-year fixed mortgage rates had a strong positive correlation of 0.71 between October 2024 and September 2026, indicating that the two have tended to move closely together. The findings come as the Bank of England raises interest rates amid inflationary pressures linked to the conflict in the Middle East, which has driven renewed volatility in global energy markets.

Commenting on the Bank of England's decision to increase interest rates [2], Chris Jaccarini, Senior Economist at ECIUsaid: “Today’s rate rise highlights how our dependence on volatile oil and gas markets is putting ever greater pressure on the cost of living, with higher oil and gas prices not only pushing up energy and food bills but increasingly driving inflation, interest rates and mortgage costs.

 
“People on tracker mortgages will see their monthly repayments rise as this increase takes effect [3], but the impact extends much further, with expectations of higher rates already reflected in fixed mortgage pricing for those taking out or renewing deals. Since the onset of hostilities in the Middle East there has been a strong positive correlation between oil price and mortgage costs changes, highlighting how our exposure to global fossil fuel markets can feed through into the cost of borrowing.[1]
 
“Higher energy prices are also pushing up the cost of everyday essentials, from food and household energy to transport [4], while burning oil and gas is worsening climate change, increasing the risk of extreme heat, drought and flooding that threaten harvests and food supplies [5]. This is why achieving net zero is so fundamental to taking back control of the cost of living, reducing our exposure to volatile global markets while tackling the climate change that threatens to push up costs even further.”