Around 1.3 million additional UK households are now exposed to higher mortgage costs following the economic “shock” linked to conflict in the Middle East, according to the latest Financial Stability Report from the Bank of England.

The central bank said the UK economic outlook has “deteriorated”, placing increased pressure on both households and businesses and contributing to weaker confidence among prospective buyers, particularly in higher-value markets such as London.

Affordability concerns are already acute in the capital, where higher property prices typically mean larger loan sizes. The latest warning is expected to add to hesitation among buyers weighing up long-term financial commitments.

There are also signs of mounting pressure within the private rental sector. Government-commissioned research by HMRC, analysed by Emoov, suggests that 24% of landlords intend to reduce the number of properties they hold within the next year, rising to 33% over the next five years.

This points to a continued erosion of confidence among smaller landlords, with some opting to exit the market while fewer new entrants replace them.

Nick Neale, property specialist at Emoov, said: “The warning from the Bank of England will only deepen the anxiety buyers are already feeling.

“If over a million households are braced for higher mortgage costs, people will understandably think twice before taking on fresh debt.”

“Taken together, the Bank of England’s warning and the government’s own landlord data paint a picture of a housing market where both homeowners and landlords are being squeezed from all sides.”

Neale said uncertainty around mortgage rates was also likely to weigh heavily on landlords’ decisions.

“With the Renter’s Rights Bill on the horizon, we are seeing an increasing number of landlords selling up, and smaller investors are leaving the market.

“New landlords are not entering the market now because borrowing costs are high and the return is not there. If mortgage costs rise for existing landlords as well, you risk even more rental stock being pulled from the market.”

He added that a combination of global instability and domestic policy changes was creating a challenging backdrop for the housing sector.

“Uncertainty across the country and around the world is making people second-guess their decisions, especially when it comes to purchasing a property.

“Growing economic instability, including rising unemployment, interest rate hikes and climbing inflation, means people are a lot more cautious about what the future may hold.”

Neale urged prospective buyers and landlords to take a measured approach to affordability.

“Buyers need to think carefully about affordability and avoid rushing into decisions.

“People are understandably more conscious of the costs, including the property price, legal fees and future mortgage payments. In the current climate, stress-testing your own finances is just as important as any checks the lender carries out.”