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Rise in gilt yields set to force up fixed rates

Five and 10-year gilt yields have gone up 0.34 per cent and 0.47 per cent in the last month, with several lenders hiking longer-term deals.

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Economists and brokers believe a surge in gilt yields is set to push up the cost of fixed rate mortgages, particularly for longer-term deals.

As at 9 September, two, five and 10-year gilt yields, which feed into the cost of mortgages, were 0.49 per cent, 1.72 per cent and 2.94 per cent respectively. Gilt yields have increased a respective 0.15 per cent, 0.34 per cent and 0.47 per cent in the past month alone.

Over the last week Yorkshire Building Society has increased its five-year fix by 0.1 per cent, Nationwide has pushed up five-year deals by up to 0.4 per cent and Accord Mortgages has put up rates by 0.2 per cent.

ING Direct senior economist James Knightley says: 
“We will probably see interest rates rise as external influences affect lenders’ funding. I do not anticipate an aggressive move but we will see rates push up.”

Economist Gary Styles, who previously worked with housing data firm Hometrack, says: “There will be a definite upward pressure on mortgage rates, particularly on longer-term fixes. It is important to monitor all economic data including gilt yields, rather than just focusing on the recent housing stats that paint a rosy picture.”

John Charcol senior technical director Ray Boulger says: “I would not expect much change in the two-year fixed market in response to the yield rises but the more important period is five years and longer. It is likely we will see more lenders near the top of the best buy list for five and 10-year rates pushing up their rates over the next few weeks.”

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