Global Bond Selloff Sends UK Mortgage Costs Soaring

Homeowners in the UK and beyond are facing significant increases in mortgage costs due to a global bond market selloff. The surge in energy prices caused by the Iran war has contributed to this trend, with borrowing costs reaching decade highs in many countries.

Richard Merrett, managing director at mortgage firm Alexander Hall, is experiencing this firsthand. His mortgage interest rate will triple from 1.14% to 3.42%, increasing his monthly payments from £550 to £1,650.

The Bank of England estimates that over five million households will see their mortgage repayments increase by the end of 2028, with average increases ranging from £45 to £170 per month for those whose fixed-rate mortgages are due to expire this year.

Nicholas Mendes, mortgage manager at broker John Charcol, notes that banks pass on increased funding costs to homebuyers, contributing to rising mortgage rates. In the UK, 30-year government bond yields have topped 6% for the first time since 1998, while two-year Sonia swap rates have risen by 27 basis points in a month.

As mortgage rates rise globally, the impact on borrowers is becoming more pronounced. The US has seen its 30-year fixed-rate mortgage rate soar to 7.28%, while euro zone government yields are driving up interest rates there as well.