How the Iran War Affects Your Money and Bills

Fuel Prices: What Drivers Are Already Paying

The impact at the pumps has been immediate and significant. Average petrol prices have hit 157.71p a litre, up 25p since the conflict began, according to the RAC. Diesel has jumped to 190.62p a litre, a rise of 48p over the same period.

For drivers, that means filling a typical 55-litre family car with petrol now costs about £13 more than before the conflict. Diesel drivers face an extra £26 per tank. The RAC estimates that every $10 increase in crude oil pushes up pump prices by roughly 7p a litre.

Even if you don't drive, rising fuel costs tend to feed through to higher prices for goods and services — from supermarket deliveries to public transport. As Matty Stevens, founder of The Mortgage Genie, points out: "Higher transport costs ripple through the entire economy. It's not just about the price at the pump — it's about the price of everything that gets delivered on the back of a lorry."

Mortgage Rates: Costs Rising, Choice Shrinking

Before the Iran conflict, there was genuine optimism that fixed mortgage rates would continue their downward trend. That optimism has evaporated. Lenders have raised rates sharply as their own funding costs — linked to swap rates — have surged.

The average two-year fixed rate has jumped from 4.83% to 5.90%, its highest since July 2024, according to Moneyfacts. The average five-year fix has risen from 4.95% to 5.78%, the highest since November 2023. The cheapest deals have risen the fastest.

Choice has also narrowed. Around 1,500 residential mortgage products have been pulled from the market as lenders reprice or withdraw deals entirely. Several major lenders raised rates in March, and others withdrew products with just hours' notice.

Around 1.8 million households are due to remortgage this year — many rolling off ultra-low rates taken out five years ago at between 1% and 2%. Someone moving a £200,000 mortgage from 1% to 4.75% would see monthly payments rise from £753 to £1,140. Our remortgage guide explains how to prepare.

Matty Stevens at The Mortgage Genie says: "If your deal is expiring in the next six to nine months, don't wait. Most lenders let you lock in a rate well in advance, and if rates come down before completion, you can often switch to a better deal. It costs nothing to secure your position."

Energy Bills: Price Cap Protection — for Now

Ofgem's price cap currently shields households on variable-rate energy tariffs, and bills actually fell slightly in April. But that protection only lasts until July, when the cap is next adjusted based on wholesale market prices from the preceding weeks.

Cornwall Insight forecasts that, from July, the typical dual-fuel household will pay around £1,871 a year, up from the current £1,641 — a rise of about 13.5%. A sustained ceasefire could reduce the peak, but the period of elevated wholesale costs is already locked in to some extent.

Those on heating oil — widely used in rural areas and Northern Ireland — are even more exposed, as there is no price cap for heating oil. The Prime Minister has announced £53 million in support for vulnerable heating oil users. For homeowners considering green home improvements, energy-efficient upgrades could provide long-term protection against volatile energy costs.

Inflation: Rising Again, but Not Like 2022

Before the conflict, the OBR forecast UK inflation at just 2.3% for 2026 — close to the Bank of England's target. Now, Oxford Economics projects inflation will average around 2.7%, with the energy shock adding roughly 0.4 percentage points to the annual figure.

However, analysts do not expect a repeat of the 11.1% peak in October 2022. The Ukraine conflict disrupted food commodities like wheat and edible oils — that dynamic is not at play in the current situation. The pressure is concentrated on energy and fuel.

For mortgage borrowers, stickier inflation means the Bank of England is less likely to cut the base rate. Markets that had priced in multiple cuts this year have now scaled back expectations dramatically. For a deeper look at how rates have moved over time, see our UK mortgage rate history.

Interest Rates: Cuts Delayed — or Even a Rise?

The Bank of England held the base rate at 3.75% in February and has since adopted a 'wait and see' stance. Governor Andrew Bailey had previously signalled scope for further cuts, but the inflation picture has changed.

Many analysts now believe the next move in rates could be upwards, not downwards. That would directly affect borrowers on tracker and variable-rate mortgages, who see their payments move in line with the base rate.

Matty Stevens at The Mortgage Genie advises: "Whether rates go up or pause, the message is the same — sitting on your lender's standard variable rate (SVR) is the most expensive option. The average SVR is over 7%. Even securing a fix at 5% saves you serious money. Fee Free Advice means you can explore your options without any cost."

If the Ceasefire Holds: Base Rate and Mortgage Rate Predictions

If the Trump-brokered ceasefire holds and oil flows freely through the Strait of Hormuz again, the outlook for UK borrowers improves significantly — but recovery will not be instant.

Base rate: Oxford Economics' baseline assumption is that, if the conflict resolves, Bank Rate could still fall to around 3.50% by the end of 2026, with the first cut likely in June or August. That compares with the pre-conflict expectation of reaching 3.25% by year-end. If the ceasefire collapses, expect rates to remain at 3.75% or higher throughout the year.

Mortgage rates: Swap rates — which drive fixed-rate mortgage pricing — have already retreated slightly on ceasefire hopes. If the de-escalation is sustained, best-buy two-year fixes could gradually fall from around 4.75% back towards 4.25%–4.40% by Q4 2026. Five-year deals could drop towards 4.10%–4.30%. However, lenders will price cautiously; the sub-4% deals that were available in February are unlikely to return before 2027.

If things escalate: A renewed conflict or closure of the Strait of Hormuz would send oil back above $100, push inflation towards 3.5%, and potentially force the Bank of England to raise the base rate to 4% or higher. In that scenario, average two-year fixes could reach 6.5% and product choice would shrink further.

Matty Stevens of The Mortgage Genie concludes: "The ceasefire is good news, but markets don't forget quickly. Even in the best-case scenario, mortgage rates won't snap back to where they were overnight. My advice? Lock in now, and if rates do fall later, most lenders will let you switch to a cheaper deal before completion."

What You Should Do Now

Whatever happens next in the Middle East, there are practical steps you can take to protect your finances:

• Lock in your mortgage rate early: Most lenders allow you to secure a rate six to nine months in advance. If rates fall, you can switch; if they rise, you're protected.
• Review your energy tariff: Fixed energy deals are being pulled, but there may still be options that protect you from July's expected price cap rise.
• Check your mortgage protection: Higher payments mean higher risk. Make sure you have adequate income protection and critical illness cover.
• Reduce non-essential spending: With inflation rising and wage growth stalling, building a financial buffer is more important than ever.
• Get Fee Free Advice: A qualified adviser can access deals from 90+ lenders and may find options you wouldn't see online.

Speak to our FCA Regulated Advisers about protecting your mortgage costs →