Bond yields hit 27-year highs, but only long-term mortgage costs rise: Brokers – Mortgage Strategy
The cost of borrowing in the UK reaches 27 years, but brokers believe this will only affect long-term mortgages.
The yield on government bonds has jumped to its highest level today, at 5.698%.
The hike is underway with the market preparing for budget preparations for the projected November Prime Minister Rachel Reeves, and she is expected to develop plans to raise up to £20 billion to fill loopholes in public finance.
However, investors are concerned that Labor’s tax measures may slow growth.
“In the summer, there are many options for raising taxes and seem to be worried that the decisions made may not be considered adequately enough,” said Susannah Streeter, head of currency and markets at Hargreaves Lansdown.
“Worrying that the government’s vaults will not be replenished, but will lead to an increasingly vicious cycle at the expense of growth.”
However, John Charcol mortgage technology manager Nicholas Mendes noted that the 30-year gilding production jump “does feed on mortgage pricing, but mainly in the long term of the market.”
The SONIA swap rate with a mortgage rate of 10 years was 4.19%, compared to 3.96% in early August and 3.63% a year ago.
Although the 30-year Sonia swap was 4.73%, compared with 4.44% in early August and 3.73% a year ago.
Mendes said, for example, this makes a decade-long fixed mortgage relatively expensive because lenders hedge fees are much higher for those periods”.
In comparison, the two-year and five-year Sonia swaps were 3.73% and 3.83%, down from a year ago. These shorter loans account for three-quarters of all outstanding mortgages in the UK.
“The practical effect is that shorter fixed rates are still the most competitive, while longer fixed rates have a premium,” Menedes added.
“For borrowers, the choice boils down to priority – if flexibility and lower speed are key, then shorter fixes look more attractive.
“If the long-term certainty worth the effort, then a decade of deals still makes sense, but the pricing gap explains why these products are not lowered in the same way.”
Last month, a series of reports surfaced, which said the prime minister was considering a series of property taxes as part of his budget.
