Iran war costs: How households adjust household finances

The Iran war’s shock to energy markets and ensuing volatility in global financial conditions have forced many UK households to rethink budgets. Higher fuel and gas prices, together with a rise in borrowing costs, have pushed families to trim discretionary spending, draw on savings or increase borrowing to cover essentials.

The situation unfolded rapidly as energy-price spikes and shifts in government bond and swap markets fed through to retail borrowing. The Bank of England’s Financial Policy Committee said the conflict had created a substantial negative supply shock, noting consequences for energy prices, gilt yields and mortgage costs; it warned that millions more households could face higher mortgage payments in the coming years. Lenders have reacted by withdrawing or repricing mortgage products as swap rates rose.

In markets, the immediate transmission mechanism has been rising swap rates and gilt yields, which directly influence fixed-rate mortgage pricing. Several lenders tightened offers or removed deals from the market, reducing product choice for consumers and heightening refinancing risk for those with deals maturing soon. Bloomberg and market trackers reported notable increases in swap rates during March and April, which fed into higher quoted mortgage rates.

Broader indicators show the shock is already affecting households: the Office for National Statistics’ survey in March 2026 found a large share of adults reporting higher cost-of-living pressures, with fuel and food cited as main drivers. Such external shocks can lift inflation expectations and complicate the Bank of England’s policy path, potentially delaying or scaling back anticipated rate cuts and keeping borrowing costs elevated for longer.

Analysts say outcomes will differ across income groups: lower-income households and those with soon-to-renew mortgages are most exposed. In the near term, expect weaker consumer spending and tighter household finances; medium-term prospects hinge on whether energy price pressures persist and how quickly gilt and swap markets stabilise. Market participants will watch swap curves and gilt yields closely for signs that mortgage repricing is easing or set to continue.