Mortgage experts are warning that homeowners could face a short-term increase in mortgage rates if Andy Burnham replaces Keir Starmer as prime minister, as markets react to political uncertainty.
However, brokers say rates could ease over the longer term if a new leader in government reassures investors with credible tax, spending and borrowing plans.
Burnham won the Makerfield by-election by a large margin, beating Reform’s Robert Kenyon by more than 9,000 votes. He is now being viewed as a serious contender for the Labour leadership and could become prime minister within weeks if he secures enough support from Labour MPs.
Political changes do not directly set mortgage rates, but they can affect market confidence. If investors believe a new government will keep borrowing and inflation under control, gilt yields and swap rates may fall, giving lenders more room to cut fixed-rate mortgage deals.
If markets fear higher spending, higher borrowing or unclear funding plans, those rates can rise.
Gilt yields are the return investors demand for lending money to the UK Government, and they often reflect market expectations for inflation, borrowing and future interest rates. Rising gilt yields can suggest investors expect inflation or interest rates to remain higher long-term.
Fixed mortgage rates are more directly influenced by swap rates, which reflect what lenders expect interest rates to do over a set period. But swap rates are closely influenced by gilt yields because both move in line with market expectations for inflation, borrowing and future Bank of England rates.
This matters for mortgages because when gilt yields and swap rates rise, lenders may face higher costs to fund their fixed-rate mortgage deals, and those costs are often passed on to borrowers through higher mortgage rates.
Nouran Moustafa, a financial adviser at Roxton Wealth, explained: “A Burnham leadership would not automatically change mortgage rates, as lenders price off swap rates, inflation expectations and Bank of England policy, not political personalities.
“But politics does affect confidence. If markets see him as fiscally disciplined, pro-growth and serious about housing supply, the mortgage impact could be fairly neutral or even positive over time if supply improves.
“If they see higher spending, higher borrowing or unclear funding, gilt yields and swap rates could rise, and that can feed into mortgage pricing.”
Mortgage advisers believe that if Burnham does get into power, rates could therefore initially rise slightly as the market reacts to temporary uncertainty.
But over the long term, they say a Burnham premiership could reassure markets if it brings greater political stability and a credible economic plan, potentially easing pressure on mortgage costs.
Ben Perks, managing director of Orchard Financial Advisers, said: “Overthrowing the prime minister will cause a little turbulence initially, so we could see mortgage rates wobble in the short term. But if his pledges are met with approval from the markets, we could see rates improve significantly.”
However, experts warn the longer-term impact will depend on how markets react to any new policies. For example, higher spending could push up gilt yields, which would push rates up.
Ian Futcher, financial planner at Quilter, said: “A Burnham premiership would likely be judged first through the lens of fiscal credibility, and that has direct implications for mortgage rates.
“Markets tend to focus on the outlook for government borrowing and inflation, and any perception that policy is moving towards higher spending or looser fiscal discipline could push up gilt yields. That in turn feeds through to swap rates and the pricing of fixed mortgages.
“However, if a Burnham-led government were able to reassure investors that it would stick to existing fiscal rules, or deliver a credible plan for managing borrowing, some of that pressure could ease. In that scenario, mortgage pricing could stabilise rather than continue drifting upwards.”
Moustafa added: “Short term, I would expect uncertainty rather than cheaper mortgages. Borrowers should not assume a new leader means lower rates. Long term, the key question is whether [Burnham] can deliver more homes without frightening the bond market.”
What should you do if you’re buying or remortgaging?
While some homebuyers or those coming up to remortgage their fixed deals may want to wait and see, industry experts say it’s better to lock in a deal now as you can still remortgage onto a lower rate later if rates come down, but it means you’re protected if rates rise.
If you are due to remortgage in the next few months, waiting until any political uncertainty blows over could see you roll onto your lender’s standard variable rate (SVR) – and these tend to be much higher than fixed deals. The average SVR was 7.13 per cent as of the end of May.
Martin Rayner, financial adviser at Compton Financial Services, said: “The smartest move is to secure a fixed-rate deal now. It is one of the few real win-win opportunities available to borrowers because it protects you from rising rates while still allowing you to benefit if rates fall.
“Most lenders let you lock in a rate up to six months before your current mortgage ends, while existing lenders will often allow a new deal to be reserved around three months before expiry.
“If rates rise, you are protected. If rates fall, many lenders will allow you to switch to the lower rate before completion. That puts you in a far stronger position than waiting until your fixed term ends and simply taking whatever rates are available at the time.”
Moustafa advised speaking to your lender and comparing what they can offer you with the wider market. Consider speaking to a mortgage broker, as these are professionals who have access to the full range of deals on offer – although bear in mind you will have to pay a fee.
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