British homeowners are facing renewed pressure as borrowing costs rise sharply, threatening significantly higher mortgage payments for households coming off older fixed rate deals.
The yield on 30 year UK government bonds climbed above 6 percent on Thursday, reaching its highest level since 1998, Reuters reports. The surge is feeding directly into expectations for mortgage rates and increasing pressure on Britain's already fragile housing market.
Mortgage deals are getting more expensive
Banks and mortgage lenders use financial market rates when determining how much to charge borrowers.
Reuters reports that some UK lenders have already withdrawn mortgage products as markets react to higher oil prices, persistent inflation and rising global borrowing costs.
The impact could become particularly painful for homeowners whose cheap fixed rate mortgages expire over the coming months.
More than five million UK households could face higher mortgage repayments by 2028, according to figures cited by Reuters. Some borrowers could see monthly costs increase by around £170, while households leaving exceptionally cheap deals may experience much larger jumps.
Oil and inflation add pressure
The latest mortgage shock is connected to a broader global bond selloff.
Higher energy prices have increased concerns that inflation could remain elevated for longer. Investors are therefore demanding higher returns to hold government debt, pushing bond yields upward.
The pressure is particularly significant in Britain because households, businesses and the government are all sensitive to higher borrowing costs.
UK mortgage approvals have already fallen to their lowest level since 2023, Reuters reports, while house price growth remains weak.
Banks also feel the impact
The turmoil has spread to the stock market.
NatWest shares fell 5.2 percent on Thursday, while HSBC dropped 4.3 percent, Lloyds declined 4.4 percent and Barclays lost nearly 4 percent, according to Reuters. The broader FTSE 350 banking index recorded its sharpest daily fall since May.
Investors are also watching Britain's upcoming Autumn Budget, with uncertainty over possible tax changes adding to concerns around the financial sector.
What homeowners should watch next
The direction of mortgage rates will depend heavily on inflation, energy prices and expectations for future Bank of England interest rate decisions.
For homeowners approaching the end of a fixed mortgage deal, the latest market moves mean refinancing conditions could be considerably more expensive than they were only a few months ago.
With government borrowing costs at levels not seen for nearly three decades, mortgage rates and UK house prices are likely to remain closely watched in the weeks ahead.
