Global financial markets are beginning to react to the escalating conflict in the Middle East, and the effects are already being felt in the cost of borrowing.
In the UK, several major lenders including Nationwide, HSBC and Coventry Building Society have started increasing mortgage rates by up to 0.25%. The move follows a sharp rise in financial market “swap rates”, which are closely linked to expectations about future interest rates.
While the headlines are focused on the UK, the same forces are now influencing borrowing costs across Europe, including Spain.
For anyone planning to buy property, refinance, or secure a mortgage in Spain in 2026, geopolitical events thousands of kilometres away may soon affect the rates they are offered.
Why global conflicts affect mortgage rates
Wars and geopolitical shocks tend to push energy prices higher, particularly oil and natural gas. Europe remains highly dependent on imported energy, making it particularly sensitive to disruptions.
Economists are already warning that the conflict involving Iran could raise inflation again in the eurozone if oil and gas prices remain elevated.
Energy prices feed into inflation in two ways:
- directly, through higher fuel and electricity costs
- indirectly, as businesses pass on higher operating costs through wages and services
Even a modest increase in inflation expectations can influence central bank policy.
Financial markets are now adjusting their expectations about future interest rate cuts from the European Central Bank (ECB). If inflation risks rise again, the ECB may slow down or delay rate reductions.
That change in expectations immediately feeds into swap markets, which lenders use when pricing fixed-rate mortgages.
What economists are saying
Analysts modelling the impact of the Middle East conflict suggest that energy price increases could push eurozone inflation higher than the ECB’s 2% target.
Some projections suggest oil prices could rise towards $100 per barrel in a worst-case scenario. If sustained, this could add roughly 0.3 percentage points to eurozone inflation.
Markets have already started to price in the possibility that interest rates may stay higher for longer.
There is also a more severe scenario that economists are watching closely: stagflation, where inflation rises while economic growth slows.
While this is not the central forecast, it is one reason financial markets have become more cautious about future rate cuts.
What this means for mortgages in Spain
Spanish mortgage rates are heavily influenced by Euribor, which reflects expectations about eurozone interest rates.
Over the past year, Euribor had started to stabilise after the sharp increases seen during the inflation spike of 2022-2023.
However, geopolitical shocks can quickly shift the outlook.
If inflation fears return, lenders may:
- slow down planned rate reductions
- increase fixed-rate mortgage pricing
- tighten lending conditions in some cases
This does not necessarily mean rates will surge again, but it could delay the gradual easing many borrowers had expected this year.
Should buyers act now?
For buyers and homeowners in Spain, the key factor is uncertainty.
Markets tend to react quickly to geopolitical developments, and mortgage pricing can change rapidly as lenders adjust their funding costs.
Many lenders allow borrowers to secure mortgage offers several months before completion, which can provide protection if rates move higher in the meantime.
Baleario comment
Chad Harwood-Jones, founder of Baleario, says international buyers should view the situation calmly but remain aware of how global events affect borrowing costs.
“Mortgage markets are increasingly global. A conflict in the Middle East can influence energy prices, which affects inflation, which then feeds into interest rate expectations across Europe,” he says.
“In Spain, we are still seeing relatively stable mortgage conditions compared with the volatility of the past few years. But moments like this remind buyers that timing matters. If someone is planning a purchase or refinance, it can be sensible to explore options early rather than assuming rates will keep falling.”
The bigger picture
For now, economists expect the European Central Bank to keep interest rates unchanged in the short term, while monitoring inflation risks linked to energy prices.
Much will depend on how long the conflict lasts and whether it significantly disrupts oil and gas supplies.
If tensions ease quickly, the impact on European interest rates may be limited.
If the conflict escalates or energy prices remain high for an extended period, borrowing costs across Europe, including Spain, could remain higher for longer than markets had previously expected.
