UK debt market sell-off threatens to push up mortgage costs
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About 700,000 homeowners face increase when fixed-rate deals end this year. About 700,000 homeowners are facing an increase in mortgage costs when their fixed-rate deals end this year, as a sell-off in the UK government debt market plunges the financial markets into turmoil and threatens to push up household borrowing costs.
Mortgage rates had been predicted to ease this year, as analysts projected multiple cuts to the Bank of England base interest rate, which was expected to feed into the lowering of mortgage rates for homeowners and buyers. However, the sell-off in government bonds, or gilts, fuelled by concerns over inflation and heavy public borrowing, could keep borrowing costs higher for longer.
As she heads to China for an official visit, Rachel Reeves, the chancellor, is considering imposing steeper cuts to public services to repair the government’s finances after the UK’s long-term borrowing costs rose to the highest level since 1998 this week.
Swap rates, which are tracked by lenders and are the major influence on the pricing of mortgages, have risen sharply. Two-year sterling interest swap rates, which are a gauge of the average interest rate over 24 months, have risen from just under 4% in mid-September to more than 4.5%.
As it stands, this is likely to mean there will be no relief in mortgage rates in the near future for homeowners and new buyers, and comes on top of an estimated 2.4 million households having to remortgage over the last two years. Higher interest rates will add £1.27bn to the annual housing costs for property owners remortgaging in 2025, according to research by the property company Savills reported by the Financial Times.
