Since last September, when the Liz Truss mini-budget sparked days of market turmoil, when government borrowing costs, which directly affect mortgage rates, have increased to their highest rate.
The market interest rate for a two-year loan to the UK government is now actually higher than it was then, right after that mini-budget. Additionally, it has reached its highest level in fifteen years and is now obviously higher than that of the US Government.
For many people renewing their mortgages, the fact that this market panic is not as severe as the one from last autumn will provide little solace.
All of this reflects market expectations that the UK has a particular issue with persistent and sticky inflation that will necessitate higher interest rates for a longer period of time. Some market predictions now predict that rates will increase by 0.5 percentage points the following week and will stabilize closer to 6% than to 5% at the end of the year.
The mini-budget's aftermath differs significantly in a significant way. The short-term rates are where the changes are most noticeable. As a result of the market losing faith in the then-government's tax and spending plans, the longer-term 10- and 30-year borrowing last autumn experienced significant changes in yields. For such long-term borrowing, current rates are still significantly below that market panic.
The move made today is more akin to a steady squeeze as the markets adjust to the Bank of England keeping rates higher for a longer period of time than what had been anticipated and above rates seen in comparable economies.
For some homeowners, it won't be any less difficult. For borrowing on two-year fixed-rate mortgages, the two-year rate serves as the base. There has been a flood of mortgage repricing, putting landlords under special pressure. When the pandemic stamp duty holiday expires in 2021, a wave of two-year mortgage deals will be up for renewal at significantly higher rates.
