Borrowers told to ‘act quickly’ after first mortgage rate rise since bond market unrest

The Coventry Building Society has announced plans to up the cost of new fixed rate mortgages, with all eyes on what other lenders do given this week’s latest increase in bond yields

The first mainstream lender has said it is increasing mortgage rates amid turbulence on bond markets.

The Coventry Building Society has announced increases across its entire range of fixed-rate mortgages.

It follows a jump in the yield – interest rate – on UK governments bonds, which has a spillover into lenders’ funding costs.

The yield on those bonds – known as gilts – eased slightly on Thursday but remain punishingly high, driving up the government’s borrowing costs even more. The yields on 30-year UK bonds dropped to 5.83%, but still close to the highest level since 1998. The benchmark 10-year gilt yields slipped to 5.19%, having reached the highest since 2008 earlier this week.

PM Andy Burnham used his first Prime Minister’s Questions to try to calm the bond markets, amid pressure on him, and Chancellor John Healey, ahead of next month’s Budget.

Coventry’s changes affect fixed deals for new and existing residential and buy-to-let borrowers, raising concerns that other lenders could follow with their own repricing announcements. They will be implemented from Monday, when it will reveal how much the increases will be.

Justin Moy, managing director at Chelmsford-based EHF Mortgages, said: “The warning most mortgage brokers gave at the start of the week has come true, with mortgage lenders having little choice but to raise mortgage rates as borrowing costs rise.

“It’s become a race to the top; borrowers need to be aware and act quickly to secure deals, especially those looking to remortgage in the coming months, particularly those on 1% to 2% rates from 2022. There is little to suggest improvements are on the horizon. The October Budget needs to be a belter to save 2026, and the government.”

Stephen Perkins, of Norwich-based Yellow Brick Mortgages, said: “Coventry’s move is another reminder that fixed mortgage rates can change quickly as wholesale funding costs move. Borrowers approaching the end of a deal should review their options early, but not panic.”

Jamie Elvin, director at London-based Strive Mortgages, said: “Coventry Building Society’s decision to increase fixed mortgage rates is another sign that rising bond yields and swap rates are beginning to feed through to borrowers.

“With geopolitical uncertainty in the Middle East adding further pressure to financial markets, other mainstream lenders could follow. For borrowers approaching a remortgage or planning a purchase, securing a rate early may provide some protection if mortgage pricing continues to move higher.”

The warnings came despite positive signals for the economy in a new survey. S&P Global’s snapshot of the UK service sector – which covers everything from banks to restaurants – showed an uptick in workloads last month.

Tim Moore, economics director at S&P Global Market Intelligence, explained: “Service providers are increasingly optimistic about the year ahead business outlook, with confidence levels now close to those seen just prior to the Middle East conflict.”

Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, predicted the economy will grow by 0.2% to 0.3% between June and September.

He added: “The second half of the year looks more challenging, though. Oil prices are increasing again, and inflation will rise to above 3.5% later this year, squeezing household incomes. The next Budget also has the potential to make or break the final quarter. A repeat of the confidence sapping speculation about tax rises will cause growth to slow sharply, especially as Chancellor Healey has probably lost about half his headroom to higher gilt yields and inflation, making further tax rises inevitable.”