Some of the cheapest fixed rate mortgage deals in the market were withdrawn today in the first “canary in the coal mine” warning sign that rising gilt yields may be now feeding through to the price of home loans.
Santander said it was “temporarily” shelving eight residential and remortgage deals, all for five year fixed terms from 10pm tonight.
They include a deal for house purchase priced at 3.68% -one of cheapest mortgages currently on the market - for borrowers with a deposit of at least 40% and prepared to pay a £999 fee.
A similar product for borrowers with a deposit of between 25% and 40%, priced a 3.92% is also being withdrawn.
Although there has not yet been a wholesale repricing of mortgages, brokers fear that the period of sharp falls in rates seen over the summer may now be at an end.
Mortgage fixed rates move in line with City wholesale swap rates, which are in turn linked to gilt rates.
In the same way that global oil price movements after eventually be reflected on the cost of petrol on the forecourt, so fluctuations in swap rates will influence market mortgage rates after a lag of a few weeks.
Gilt rates fell after the July election as City traders looked forward to a period of political stability and Bank of England cuts after Labour secured a huge majority with Keir Starmer as Prime Minister.
However, they have started rising again over the past month as investors grow increasingly nervous about the level of public borrowing Rachel Reeves may be prepared to take on by relaxing fiscal rules to fund investment as well closing the £22 billion “black hole” in the Government finances she says she has inherited from the Tories.
Meanwhile the gap between UK gilt yields and German bond yields has widened to its largest margin in over a year, in part due to expectations that the European Central Bank (ECB) will cut interest rates faster than the Bank of England to stimulate the sluggish eurozone economy.
Today the yield on the benchmark 10 year gilt stood at 4.23%, up 1.5 basis points on the day, compared with a trough of around 3.75% in mid September.
