UK mortgage borrowers brace for rate jump amid global bond sell-off
UK mortgage borrowers face potential rate rises after a global bond market sell-off pushed swap rates, which lenders use to price fixed mortgages, to a three-year high. The turmoil was triggered by rising oil prices following clashes between the US and Iran, which stoked fears of higher inflation and prompted investors to sell bonds, driving up yields. Although markets calmed slightly on Thursday, the episode threatens to complicate Prime Minister Andy Burnham's efforts to ease living costs, with borrowing costs remaining elevated.
The five-year swap rate rose above 4.52% on Wednesday, its highest since October 2023, while UK 10-year government bond yields hit levels not seen since 2008 before easing as Brent crude dipped 0.6% to $95 a barrel on Thursday. Yorkshire Building Society's Tom Simpson said swap rates were now 0.7 percentage points higher than a year ago, though the recent 0.1 point rise was smaller than the 0.5 point jump seen after US and Israeli strikes on Iran in March. Average fixed mortgage rates were unchanged on Thursday, with Moneyfacts putting the typical two-year fix at 5.59% and five-year fix at 5.63%.
In short
- UK swap rates hit three-year high amid global bond market turmoil
- Oil price rises after US-Iran clashes stoked inflation fears
- Mortgage rates could rise, though current fixed deals unchanged so far
Explained simply
Fixed-rate mortgages keep the interest rate on a home loan unchanged for an agreed period, often two or five years. Lenders use swap rates—market prices linked to expectations of future interest rates—to help set the rates they offer borrowers.
Oil prices can affect inflation because energy is used across the economy. When investors expect inflation to rise, they may sell government bonds, pushing up their yields; this can also put pressure on swap rates and mortgage costs.
The Bank of England sets the UK’s main interest rate to help control inflation, while lenders decide what mortgage rates to offer. Changes in borrowing costs matter to households with mortgages and to the government’s efforts to manage the cost of living.
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