Mortgage rates to rise as borrowing costs hit highest level in 27 years

Fixed-rate mortgages look set to rise again after the cost of government borrowing soared to its highest level in more than a quarter-century.

Rates were expected to fall this year on expectations that the Bank of England will cut the base rate three or four times.

But now, rising bond yields have put mortgage rate reductions in doubt.

The 30-year bond yield hit 5.4 percent today, the highest level since 1998. Meanwhile, the 10-year bond yield rose to 4.88 percent, the highest level since the crisis financial.

This has largely been caused by Labour’s budget plan to borrow and spend more.

This affected public debt markets, since then raising interest rate expectations and bond yields.

It is also having an impact on Sonia swap rates, which reflect lenders’ expectations about future interest rates and play a key role in pricing fixed-rate mortgages.

Swaps have increased over the last month and fixed rate mortgages, in general, have not yet followed suit.

As of December 6, five-year swaps were at 3.8 percent and two-year swaps were at 4 percent.

But as of today, five-year swaps have risen to 4.12 percent and two-year swaps are at 4.26 percent.

Yesterday alone, five-year swaps rose 0.14 percentage points in one day.

This means that the lowest fixed rate mortgages are currently below their equivalent swaps, something that is incredibly rare.

The lowest five-year fixed-rate mortgage currently pays 4.07 percent and the lowest two-year fixed rate is 4.16 percent.

Are lenders raising their mortgage rates?

The picture among lenders has been mixed in recent weeks, with some raising rates while others cut them.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘Swap rates have been trending mostly up since mid-December, as the outlook suggests fewer rate cuts this year than previously thought.

‘But despite this, a number of lenders, including Halifax, HSBC and Leeds Building Society, have made significant reductions to their fixed rates as they try to build a book of business for the new year.

‘On the other hand, some lenders have moved in the opposite direction and increased some of their rates, including Skipton, Virgin and Clydesdale, while TSB has increased the price of more products than it has reduced, and Accord has increased the same. guys. how he cut it.

“Lenders that are raising their prices may be more sensitive to increases in swap rates than larger lenders that have more savings funds to draw on and are better able to absorb any increases in swaps.”

Anita Wright, chartered financial planner at Bolton James, believes the current situation could make it extremely difficult for the Bank of England to cut interest rates further.

Speaking to news agency Newspage, he said: ‘The UK is trapped in a vicious cycle of debt. It is almost impossible to reduce deficits.

‘The Bank of England clearly does not have inflation under control, the minimum wage and increased national insurance are being passed on to consumers in the form of higher prices.

‘The bond market says: “We are pretty sure that a second wave of inflation, similar to that of the 1970s, is returning.”

‘Markets are now demanding higher yields to offset the risk of inflation. It is unlikely that the Bank of England will be able to reduce interest rates in this environment and therefore mortgage rates will, at best, remain where they are.’

Stuart Cheetham, chief executive of mortgage lender MPowered Mortgages He added: ‘Continued market uncertainty is driving volatility in swap rates, which inevitably has a knock-on effect on mortgage rates.

‘Since the beginning of the year, swap rates have increased and although some lenders, including us, have reduced mortgage rates, these reductions are likely to be short-lived.

“Until market sentiment improves, swap markets will continue to see volatility and high mortgage rates are expected to persist.”