The Liberal Democrats have called on Chancellor Rachel Reeves to hold an emergency summit with banks to reassure mortgage borrowers that their costs will not go up.
This comes after the recent rise in gilt yields, which reached their highest point since 2008, which has caused analysts to suggest this could result in higher mortgage interest rates.
On Friday, the 10-year gilt yield – the cost of government borrowing – rose to 4.89%, while the 30-year gilt reached 5.5%. This was the highest level for the 10-year gilt since 2008, and the highest for the 30-year gilt in 27 years.
Reacting to this, the pound sterling fell to a 14-month low of 1.21 against the US dollar on Monday.
Earlier today, Frances Haque, chief economist at Santander, said this had led to a rise in swap rates, which could cause lenders to increase mortgage pricing in the short term.
Recently, Virgin Money and Zephyr Homeloans have both announced increases in pricing.
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Daisy Cooper MP, a spokesperson for the Liberal Democrat Treasury, said: “The Chancellor’s Budget has not worked and now many will be worried that they will have to pay the price through spiralling mortgage costs.
“After years of Conservative economic vandalism, including their disastrous mini Budget, it is a price that many cannot afford.”
She added: “An emergency summit with the banks must be convened so that mortgage payers can be reassured that they are not going to be subjected to yet another bout of spiralling costs.
“Rachel Reeves can no longer sit on her hands, as this turmoil threatens to have real consequences for millions of homeowners.”
A different situation
While it has been suggested that this might have been caused by the Chancellor’s Autumn Budget, it has also been said that the markets are reacting to inflationary news from the US, such as incoming President Donald Trump’s proposal to introduce tariffs on certain countries.
Paul Dales, UK chief economist at Capital Economics, said this situation was “nothing like the sterling crisis of 1976 or the Liz Truss episode in 2022, as has been suggested”.
He said the market reaction had been “smaller and slower”, with 30-year gilt yields increasing by 1.5% just six days after the mini Budget and the pound falling by 3%. This time, 30-year yields have gone up by 0.7% in six weeks and the pound is 1% lower.
Dales said the reason for the gilt yield surge was global this time, and while it was not a crisis, it could still cause problems.
He also predicted this would increase borrowing costs for businesses and households despite the Bank of England cutting interest rates.
Borrowers are starting to worry
One mortgage adviser said their clients were already starting to wonder what impact this would have on their mortgage costs.
Jack Tutton, director at SJ Mortgages, said: “We have seen an uplift in clients concerned with what they are reading about the state of the market and how that could impact their mortgage.
“These concerns are mainly coming from people whose mortgage is coming to an end this year; we have also had people who are considering coming out of their current deals early to secure a new rate, given how concerned they are.”
