Mortgage costs are rising sharply across the U.S. and Europe as the economic fallout from the Middle East conflict spreads into global housing markets, increasing pressure on homebuyers and borrowers despite central banks holding interest rates steady.

According to a Financial Times report published Monday, the average U.S. 30-year fixed mortgage rate has climbed to 6.36%, moving above levels seen before the Federal Reserve began cutting rates in 2025. The report said lenders are reacting to rising government borrowing costs and growing fears that inflation could accelerate again if oil prices remain elevated.

In Germany, mortgage rates on popular 10-year home loans have risen to around 3.6%, increasing annual interest costs on a new €350,000 loan by roughly €1,000, according to retail mortgage broker Dr Klein cited by the Financial Times.

"Rates have risen sharply within a matter of weeks," Florian Pfaffinger, an executive at German mortgage broker Dr Klein, said, adding that the moves had "unsettled the market."

The sharpest increases were reported in the UK, where the average quoted rate on a two-year fixed mortgage climbed to 5.1% in April from 3.97% at the end of February.

Housing Affordability Pressures Intensify

The increase in borrowing costs is adding further strain to housing markets already facing affordability challenges and limited inventory.

Earlier this month, the National Association of Realtors cut its 2026 home sales growth forecast to 4% from a previous estimate of 14%. Existing home sales in March also fell to their slowest pace in nine months despite a temporary dip in mortgage rates.

Lawrence Yun, chief economist at the National Association of Realtors, previously said affordability pressures and weaker consumer confidence continued weighing on buyers.

The Financial Times also reported that economists fear prolonged disruptions around the Strait of Hormuz could push oil prices and inflation expectations even higher, increasing the likelihood of future interest rate hikes.

Buyers Adjust To Higher Rates

Despite elevated borrowing costs, some buyers are increasingly adjusting to higher mortgage rates after years of ultra-low pandemic-era borrowing costs.

Purchase mortgage applications recently rose 4% week-over-week, even as the average 30-year mortgage rate climbed above 6.3%. Analysts said some buyers are increasingly accepting that ultra-low mortgage rates seen during the pandemic may not return.

The higher-rate environment has also fueled a "stay and rehab" trend as homeowners avoid giving up lower mortgage rates secured in previous years. The shift has benefited companies such as HD and LOW as homeowners increase spending on renovations instead of relocating.

At the same time, economists, including Peter Schiff, have warned that rising home prices and mortgage rates are making homeownership increasingly difficult for younger Americans.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by a Benzinga editor.

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