Mortgage rates are likely to rise as a result of the Budget. 

That’s the claim from Hargreaves Lansdown analyst Sarah Coles who says the bond market hasn’t loved the level of borrowing baked into the Budget, so the markets are asking the government to pay handsomely for the privilege.

She comments: “This means gilt yields rising, which they have done considerably since the speech … This isn’t anything like the carnage after the mini-Budget, because yields have climbed more slowly. However, it will take a toll on mortgage rates. 

“Fixed rate mortgages owe an awful lot to bond yields, which drive pricing in the swaps market, where banks swap variable rates for fixed ones. As the yield rises, so fixed rate mortgages will too. It means we can expect mortgage rates to climb in the coming days. 

“This is very unlikely to be the kind of eye-watering hikes we saw in the wake of the mini-Budget, but they will increase. And now that prices have returned close to the peak, it may well mean more buyers are priced out of the market.”

She suggests that variable rate mortgages are also set to suffer. 

The market is still expecting the Bank of England to cut rates this week, but it’s less likely in December now, so Coles advocates that anyone who was planning to buy with a variable rate deal on the grounds it would get cheaper soon needs to be aware that this may take longer than they expect. 

“The Bank of England base rate is still expected to be 4% by the end of next year, but it’s unlikely to get there in a hurry” she concludes.

The housing market is already slowing according to the Nationwide.

Over the weekend it revealed that house prices rose just 0.1% month on month in October, making the annual growth rate slow to 2.4%, from 3.2% in September.

Nationwide chief economist Robert Gardner says: “The price of a typical UK home increased by 2.4% year on year in October, though this represented a modest slowdown from the 3.2% pace recorded the previous month. House prices rose by 0.1% month on month in October, after taking account of seasonal effects.

“Housing market activity has remained relatively resilient in recent months, with the number of mortgage approvals approaching the levels seen pre-pandemic, despite the significantly higher interest rate environment.

“Solid labour market conditions, with low levels of unemployment and strong income gains, even after taking account of inflation, have helped underpin a steady rise in activity and house prices since the start of the year. 

“Providing the economy continues to recover steadily, as we expect, housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.