Key facts
- UK swap rates have risen to a three-year high, impacting mortgage pricing.
UK mortgage borrowers are bracing for higher rates as global bond markets experience turmoil. Rising swap rates, influenced by increased gilt yields and inflation fears stemming from oil price hikes and government spending, are pushing up the cost of fixed-term mortgages.
Rising mortgage rates directly impact the cost of living for millions of UK homeowners, potentially increasing monthly payments and straining household budgets. This also affects the broader economy by influencing consumer spending and housing market activity.
UK mortgage borrowers are facing the prospect of higher interest rates as global bond markets experience significant turmoil. Swap rates, which lenders use as a benchmark for pricing fixed-term mortgages, have climbed to a three-year high, with the five-year swap rate reaching over 4.52% on Wednesday.
This surge is largely attributed to a global bond market sell-off, fueled by fears of rising inflation. Increased oil prices, following exchanges of fire between the US and Iran, have exacerbated these concerns. Investors selling off bonds pushes their yields higher, and UK government bonds, known as gilts, have seen particularly sharp movements.
The rise in gilt yields directly impacts swap rates, as banks borrow from each other at these rates. Russ Mould, investment director at AJ Bell, noted that rising bond yields typically lead to increased interest rates on credit cards, mortgages, and auto loans as lenders aim to maintain their margins and manage risk.
While the bond market turmoil eased on Thursday, the consequences for borrowers could be significant. The yield on UK 10-year government debt had reached its highest level since 2008 before retreating, partly due to a drop in oil prices. Brent crude fell to $95 a barrel on Thursday.
Tom Simpson, managing director of homes at Yorkshire Building Society, stated that swap rates are currently 0.7% higher than a year ago, though March saw more volatility. He anticipates a modest increase in mortgage rates and advises concerned individuals to consult an independent mortgage adviser. He also noted that market movements can prompt people to lock in rates quickly.