As gilt yields this week surpassed the highs seen after last autumn’s “mini” Budget, mortgage and pension experts have weighed in on what it means for both markets.
The picture painted for the mortgage market is one of worsened strain for borrowers, as lenders continue to pull and reprice rates in response to the uncertain economic conditions and interest rates continue to climb.
For many borrowers, the increases seen across interest rates in the last few weeks means thousands of pounds more being spent per year on mortgage repayments.
For pensions, the outlook is less certain but more upbeat, with experts highlighting that what really matters for pension schemes is long-term interest rates rather than short ones.
Gilt yields rose to their highest level since 2008 this week following the release of official data that showed wages have increased at their fastest pace on record outside of the covid pandemic, adding to worries about sticky high inflation and further interest rate rises.
Today, a two-year gilt yield sits at 4.87 per cent, up from 3.87 per cent only a month ago.
The increase further mounts pressure on the Bank of England’s monetary policy committee to raise the base rate further at next week’s meeting on Thursday, June 22.
Mortgages
Trouble first started brewing in the mortgage market at the end of May, when lenders began to pull products in response to April’s higher than expected inflation figure.
At the time, experts warned that a ‘tidal wave’ of uncertainty was about to crash and since then the situation has not yet stabilised with lenders still this week repricing products with only hours notice.
Connected to the increase in gilt yields, swap rates - a leading indicator of mortgage rates - have increased by around 0.4 per cent in the last few days, and by over 1 per cent in the last month.
As a result, lenders have continued to reprice their products in line with the cost of funding.
Today, HSBC gave mortgage intermediaries only a few hours notice to secure existing residential product rates before pulling them to reprice.
Likewise, Fleet Mortgages and Mpowered mortgages also announced rate increases today.
Brokers have said the situation has been difficult to keep pace with.
Speaking to FTAdviser, mortgage adviser at London Money, Jiten Varsani said it is “panic with a dash of mayhem”.
Varsani gave the example of one case he completed yesterday just before the deadline.
“Based on today's rates, it would have cost them around £7,400 extra over five years,” he said.
“That magnified across so many other households is a serious concern for us and the economy.
“Clients are having to make 'quick' decisions on which product to choose to ensure they don't miss out. With such limited notice before products are withdrawn, we can't even let them 'sleep on it' and get back to us,” Varsani added.
