Mortgage borrowers are being warned of impending rate increases as a global bond sell-off impacts the economy. The turmoil in bond markets has led to a rise in UK swap rates, which are the interest rates banks charge each other for borrowing.
Yesterday, the five-year swaps rate surpassed 4.52%, marking its highest point since October 2023. This increase is anticipated to result in higher interest rates for fixed-term mortgages.
Lenders are expected to raise interest rates on credit cards, mortgages, and auto loans if bond yields continue to climb. This strategy aims to preserve their loan book margins and manage risk.
Tom Simpson, managing director of homes at Yorkshire Building Society, noted that the increase in swaps rates over the last week has been around 0.1 percentage point. He highlighted that this is a more modest rise compared to the 0.5 percentage point increase observed over 10 days in March, at the start of the Iran war.