‘This could get worse before it gets better’ — New mortgage fears as gilt yields top mini-Budget levels

The benchmark two year gilt was yielding 4.8% at one stage, up 18 basis points, even higher than the 4.73% seen immediately after Kwasi Kwarteng’s disastrous statement in the Commons.

The latest surge in yields was triggered by stronger than expected jobs data from the Office for National Statistics with wages rising at 7.2% in the three months to April.

It came after what brokers described as a “horrendous” day in the mortgage market when major lenders Santander and NatWest withdrew or repriced their deals. Today the average rate on a two year fixed rate mortgage rose again from 5.86% to 5.9%, according to latest data from analysts Moneyfacts.

The average cost of a five year deal rose from 5.51% to 5.55%. In the buy to let sector average rates rose from 6.03% to 6.10% on two year products, and the average five-year fixed rate increased from 6.04% to 6.09%. Brokers and advisers warned that more rises are inevitable as fixed rates move in line with gilt yields.

Lewis Shaw, founder and mortgage expert at Shaw Financial Services, said: “The past few months have been difficult, but we’ve hit top gear in the past week, culminating on Monday with swathes of deals pulled and mortgages repriced upwards. I spoke to one broker who said they’re getting anxious opening their email in the morning, and I understand what they meant. The worry is this could get worse before it gets better.

“Yesterday, short-term gilt yields spiked, and they’ve done the same today. Unfortunately, that will filter through to mortgage rates in the coming days and weeks, so we’re preparing for even higher mortgage rates, particularly 2-year fixed rates, and for rates to hang around higher for longer than any of us would like to see.”

Meanwhile housebuilder Bellway today said its order book has already fallen by 30% and it expects it to shrink further amid a “lack of affordably priced mortgage products” for those paying smaller deposits.

Orders were down to £1.7 billion and Bellway warned that “given the profile of completions in the coming months and prevailing reservation rates, a further decrease in the order book is likely”. There was also evidence today that the number of homeowners in mortgage arrears it starting to rise.

Latest data from the Band of England showed the number of regulated mortgage accounts in arrears rose by 4,352 quarter on quarter to 123,962 or 0.86% of all borrower accounts. This is still low by historical standards but there will be fears of a spike over the coming months.