In the wake of the recent budget announcement, UK gilt yields have seen a significant rise. The yield on 10-year UK government bonds has now surged to 4.5%, a notable increase from the previous rate of 4.37%. This rise in gilt yields is a direct result of market reactions to the budget's fiscal policies, which have led to increased borrowing costs.
Why Rising Gilt Yields Lead to Higher Mortgage Costs
Gilt yields and mortgage rates are closely linked. When the government issues bonds (gilts), investors buy them, and the yield is the return they get on their investment. Higher gilt yields mean the government has to pay more to borrow money, and this increased cost is often passed on to consumers in the form of higher interest rates on loans, including mortgages.
Examples of Lenders Pulling Mortgage Deals
Several lenders have already reacted to the rising gilt yields by pulling mortgage deals or increasing rates. For instance, Nationwide Building Society recently withdrew several of its mortgage products, citing the volatile market conditions. Similarly, HSBC and Barclays have also adjusted their mortgage offerings, with some fixed-rate deals being pulled from the market.
Conclusion
The recent rise in gilt yields following the budget announcement is a clear indicator of the market's reaction to increased borrowing costs. This trend is likely to continue, leading to higher mortgage costs for consumers. As lenders pull mortgage deals and adjust their rates, it's crucial for potential homebuyers to stay informed and consider their options carefully.
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