Yields on government bonds – which reflect the cost of government borrowing -have risen to 4.89 per cent for 10-year gilts, the highest level since 2008.
However, many will be wondering what the increase means for them, in terms of its impact on interest rates and mortgages?
Economists gave a range of predictions last year for how many cuts to the base rate there would be in 2025, many of which remain the same, despite the new borrowing figures.
Experts’ views varied between two, three or even four cuts this year, when The i Paper polled them last year.
Jason Hollands, managing director of Evelyn Partners, said much of the MPC’s decision would be based on inflation and growth.
Hollands said: “Part of what the bond market is telling us, is that it is reigning back expectations on the pace of rate cuts this year because inflation – while having significantly decelerated – is likely to stay just above the Bank’s 2 per cent target rate for a while yet and recent inflation-busting public-sector wage settlements haven’t helped, either.
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, added: “The Bank faces a very tricky situation, as the latest economic data points to more inflation pressure but weaker activity momentum. Despite potential economic headwinds in 2025, it will find it very difficult to deliver the rate cuts needed to stimulate the economy.
Yael Selfin, chief economist at KPMG, said: “We are still expecting three cuts this year, of 25 basis points each, with inflation fluctuating between 2 to 3 per cent and gradually returning to target.”
In a note it said: “If we’re right that inflation will fall below two per cent in 2026, we think most MPC members will still want to lower interest rates this year. After all, they may want to lower the base rate to offset the recent tightening in monetary conditions and the possible future tightening in fiscal policy.
Others believe there will be less movement. Lindsay James, investment strategist at Quilter Investors, said: “The market had expected two rate cuts in the year ahead, this is now being reviewed, although two cuts still looks like the most likely scenario.”
What the high borrowing costs could mean for mortgage rates
If you are on a variable product, a tracker, or are getting a new fixed mortgage, then your costs could be influenced by borrowing rates, according to experts.
The price of new fixed mortgages could also be impacted, experts say.
My pension was frozen 16 years ago - I have to live frugally, it's unfair
Read More“Gilt yields are often used as benchmarks for various interest rates in the economy, including those on mortgages. Lenders may adjust mortgage rates upwards to align with now higher benchmarks rates in the broader economy, ensuring they cover their own borrowing costs,” he said.
“Lenders might increase rates on credit products, including mortgages, for this perceived higher risk. What’s more, it is inevitable that increasing gilt yields, if it persists, will feed into the swap rates.
Mortgage lenders have started to cut rates in the past few weeks but lenders have warned that an increase in swap rates – which are based on expectations for where the base rate will go in the future – could feed through to higher prices soon.
Stuart Cheetham, CEO of MPowered Mortgages, which is cutting mortgage rates late on Thursday, said rates could rise again in the near future.
“That said, we have seen swap rates increase in the past 24 hours which could mean that lenders begin to increase mortgage rates towards the end of the month so the window to secure current deals could be tight.”
“The end result is the same though, mortgage rates will have to adjust higher to take into account the increases in the risk free rate.”
The i Paper spoke to experts to see whether now is a good time to buy or sell property.
Read More Details
Finally We wish PressBee provided you with enough information of ( What high borrowing costs mean for interest rates and mortgages, according to experts )
Also on site :