Why mortgage rates are still heading down despite rising bond yields
Mortgage rates have continued falling from their summer peaks even as yields on government bonds have increased.
According to data from Moneyfacts, the average rate on a 2-year fixed mortgage stands at 6.38 per cent, down from 6.41 the day before while the average rate on a 5-year deal is 5.93 per cent, down from 5.96 per cent.
Mortgage rates have been on a steadily downward track since reaching a 15-year high over the summer.
Mortgages closely track government bond yields, which suggest where investors think interest rates will be in the future. As yields fell over the summer, mortgage rates tracked lower too.
Recently, however, bond yields have spiked as markets adjust to the idea that interest rates will have to remain higher-for-longer even if rates may have already reached a peak.
Last week the yield on the 30-year gilt climbed to its highest level since 1998 while the yield on the 10-year gilt hit its highest level since mid-2008. But mortgage rates have remained on their downward trend.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said “it can take a while for a new reality to filter through into mortgages”. She highlighted that demand for houses is so low at the moment that banks might still be working through deals fixed at lower rates.
Coles also suggested that big high street banks had been “slow to react” to lower rates over the summer, meaning mortgages did not fall as fast as they could have done.
With yields rising again, Coles suggested banks “have some headroom that might stave off rate rises. It means they may be able to squeeze margins to keep rates where they are for now.”