Estate agents face another potential affordability squeeze as rising wholesale borrowing costs threaten to push mortgage rates higher.
A global bond market sell-off has driven UK government borrowing costs sharply upwards. This has also fed through to swap rates, which lenders use when pricing fixed-rate mortgages.
Five-year swap rates climbed above 4.5% this week, reaching their highest level since October 2023.
Two-year swaps have also risen sharply.
The movements increase the prospect of lenders repricing mortgage products upwards in the coming days and weeks.
That could create another headwind for estate agents heading into the traditionally busier autumn selling season.
The average two-year fixed mortgage currently stands at 5.59%, while the average five-year fix is 5.63%.
The latest pressure follows renewed turmoil in global bond markets amid concerns over inflation, government borrowing and geopolitical tensions.
UK government borrowing costs have risen particularly sharply.
The yield on 10-year gilts reached around 5.29%, its highest level since 2008. Meanwhile, 30-year gilt yields climbed above 5.9%, reaching levels not seen since 1998.
Higher gilt yields do not directly determine mortgage pricing. However, rising swap rates can quickly feed through to the fixed-rate deals offered by lenders.
Tom Simpson, managing director of homes at Yorkshire Building Society, expects the impact to remain relatively modest if current movements persist.
He said: “All things being equal, you would expect a modest increase in mortgage rates based on what we’ve seen so far.”
Simpson pointed out that swap rates have risen by around 0.1 percentage points over the past week.
That compares with an increase of around 0.5 percentage points over 10 days during the market volatility in March.
However, other property experts expect lenders to increase fixed rates if wholesale borrowing costs remain elevated.
Lucian Cook of Savills expects lenders to “further increase fixed-rate mortgage costs over coming days”.
Karen Noye, mortgage expert at Quilter, said higher five-year swap rates would concern both buyers and homeowners approaching the end of fixed deals.
She said sustained higher swap rates would probably put upward pressure on fixed mortgage pricing.
For estate agents, the concern is what another increase in borrowing costs could mean for buyer affordability and confidence.
Anthony Codling of RBC Capital Markets said first-time buyers and borrowers approaching remortgage would feel the greatest impact.
He also warned that higher mortgage rates risk slowing the autumn housing market.
“There is a risk for housebuilders that the autumn selling season gets off to a slow start,” he said.
Codling added that higher rates could cause some discretionary home movers to hesitate.
The latest developments come after signs that buyer activity was already weakening.
Bank of England figures showed 56,053 mortgages were approved for house purchase in July, the lowest monthly total since January 2024.
The combination of weaker mortgage approvals and the prospect of higher rates could therefore create a more difficult backdrop for agents during September.
Much will depend on whether the recent rise in bond and swap rates proves temporary.
If wholesale rates remain elevated, lenders could continue repricing mortgages. That would put renewed pressure on affordability just as agents look for the traditional autumn market bounce.
