Mortgage pricing hikes and product withdrawals will correct as the Middle East conflict stabilises, according to Knight Frank analysis – with the big question being how long it goes on for.
Average two- and five-year fixed rate mortgage rates have both topped 5% due to the inflationary impact of the Middle East conflict, according to Moneyfacts today.
“This is a defensive move by the banks and it should correct as rate expectations stabilise,” said Knight Frank global head of research Liam Bailey.
“Nevertheless, that could take time and rates are unlikely to return to previous lows while the volatility in energy prices continues.”
While mortgage lenders and investors have already priced out any expectation of a Bank of England base rate cut this year, this is not impossible if the Middle East conflict is resolved quickly.
“If energy prices quickly decrease, the MPC may resume easing in April or June, aligning with our forecast for one more rate cut by the end of Q2,” Oxford Economics said in a note to clients.
“Additional increases in oil prices could lead to a more prolonged pause. However, considering the policy rate is still in restrictive territory, the MPC is unlikely to hike unless inflation expectations rise significantly.”
Capital Economics said there are three possible likely outcomes for the conflict.
One is for a short war of around two weeks, where around 350 million barrels of oil could be lost, equivalent to roughly 1.4% of global annual exports. Even in this instance the global market could remain in surplus, meaning prices would likely retreat relatively quickly, Knight Frank said.
A three-month war with limited damage to energy infrastructure could remove around 5–6% of global crude and LNG exports, though flows might recover in the second half of 2026 if facilities remain largely intact.
A more severe scenario would involve lasting damage to Gulf energy infrastructure, potentially cutting about 8% of global exports and pushing oil prices into triple digits through 2026, with effects extending into 2027.
