The economic repercussions of the Middle East conflict have extended to the housing markets in Europe and America, leading to a sharp increase in mortgage costs. This surge is placing significant pressure on both homebuyers and those seeking to refinance existing mortgages.
Although central banks have not raised interest rates, mortgage lenders are increasing their rates. This move is driven by rising government borrowing costs and expectations that central banks may eventually hike rates to curb inflation risks.
In the United States, the conflict has pushed the average 30-year mortgage rate to 6.36%, a level now higher than it was before the Federal Reserve began its series of three rate cuts in September 2025.
In the Eurozone, Germany, the region's largest economy, has seen its mortgage rates rise by approximately 0.3 percentage points.
Data from mortgage brokerage Dr. Klein shows that Germany's mainstream 10-year mortgage rate has climbed to around 3.6%. For a new mortgage of €350,000, this translates to an annual interest increase of about €1,000, bringing the total to roughly €13,000.
Florian Pfaffinger, an executive at the firm, noted, "Mortgage rates have surged dramatically within just a few weeks, causing widespread anxiety in the market." He added that many buyers are rushing to finalize their mortgage agreements before rates climb further.
The increase has been most pronounced in the United Kingdom. The average quoted rate for a two-year fixed mortgage with a 75% loan-to-value ratio rose from 3.97% at the end of February to 5.1% by April.
The U.S. housing market was already grappling with a severe shortage of available homes before the Middle East conflict erupted in late February. The subsequent disruption to shipping through the Strait of Hormuz, which drove up oil prices, has now compounded the problem with rising mortgage costs.
Matt Akers, an economist at Evercore ISI, explained, "Following the overbuilding before the financial crisis, there was a severe underbuilding for over a decade, leading to a chronic shortage. Now, we are entering an era of high interest rates on top of that."
The previous U.S. administration attempted to lower mortgage rates by having government-sponsored enterprises Fannie Mae and Freddie Mac purchase mortgage-backed securities.
However, analysts believe the impact of the Middle East conflict has negated these efforts. Akers stated that any positive effects were quickly "swamped by other negative factors."
Bradley Saunders, a North America economist at Capital Economics, warned that if mortgage rates remain persistently above 6%, a recovery in the U.S. housing market will be difficult to achieve.
Brian Lewis, a real estate agent with Compass in the U.S., acknowledged that many potential buyers have come to accept they will likely never see the pandemic-era lows of 2% mortgage rates again in their lifetimes.
With one-fifth of the world's oil shipments passing through the Strait of Hormuz, industry investors and economists warn that mortgage rates could climb even higher if shipping disruptions in the strait persist.
Ongoing tensions could ultimately force central banks to raise interest rates to combat rising prices, further burdening homebuyers.
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