UK homeowners issued mortgage warning as borrowing costs hit 18-year high | Personal Finance | Finance

Homeowners have been issued a fresh mortgage warning after UK borrowing costs climbed to their highest level in 18 years.

The yield on 10-year Government bonds, known as gilts, jumped as high as 5.29% on Wednesday, September 2 – a level not seen since 2008. The increase could spell further uncertainty for mortgage borrowers, as movements in financial markets can influence the cost of fixed-rate home loans. Borrowing costs have risen amid a wider global bond market sell-off, fuelled by concerns over inflation and rising oil and energy prices.

The latest turmoil comes as households continue to face pressure from elevated mortgage costs, with any prospect of interest rates remaining higher for longer likely to be closely watched by homeowners approaching the end of fixed-rate deals.

Lauren van Biljon, senior portfolio manager at Allspring Global Investments, said: “The sell-off is being driven by two related concerns.

“Namely, persistent inflation uncertainty, and a renewed focus on debt sustainability amidst fiscal pressure. Markets are demanding a higher term premium to lend to governments for longer periods, particularly in countries with rising borrowing requirements, driving up yields on longer-dated bonds.

“Concurrently, shorter-dated securities are feeling the pressure from the renewed rise in commodity prices, which risks increased persistence in inflationary pressures. Alongside better-than-expected global growth, this could force central banks to be more hawkish than currently expected, and for a longer period.”

She warned the Bank of England could also face pressure to act if inflation remains stubborn.

Ms van Biljon added: “We expect additional cautious tightening from the European Central Bank, and a Bank of Japan that continues to tighten but at a disappointing pace. The Bank of England could be forced to follow suit later in the year but will be data-driven (wages/labour markets in particular).”

There was some relief later on Wednesday, with the 10-year gilt yield easing back to around 5.22% after hitting its 18-year high earlier in the day.

Thirty-year gilt yields also eased to around 5.86%, having climbed above 5.91%.

For homeowners, the latest developments mean mortgage rates will remain firmly in focus, particularly for borrowers remortgaging in the coming months.