Budget ‘gift’ warning as mortgage costs for 1.8 million homeowners could rise

The bond market’s response to the Chancellor’s plans may end up mattering more to homeowners than any housing measure he announces.

Homeowners hoping the Budget will reduce their mortgage bills may be left disappointed. The reaction in the markets after John Healey speaks could prove far more important.

Average five-year fixed mortgage rates have climbed to 6 per cent for the first time in three years, as the Chancellor prepares to deliver his first Budget.

About 1.8 million households are due to see their current fixed-rate deals expire this year. Many will have to refinance at much higher rates, but what they pay next could depend largely on how investors judge the Budget.

Joseph Lane, founder and chief executive of Mortgage Lane, said: “The most important housing policy will not be a housing policy at all. It will be the bond market’s verdict on the Budget.”

Why the market’s verdict matters

Fixed mortgage rates are shaped by swap rates, which move with financial markets’ expectations for interest rates and inflation. They do not simply track the Bank of England’s Bank Rate.

That helps explain why the average five-year fix has risen to 6 per cent even though Bank Rate has stayed at 3.75 per cent since December.

Mr Lane said the difference reflects the extra cost markets are putting on fiscal and inflation risks.

“Every ounce of credibility John Healey gains from a convincing plan comes straight off the bills of the 1.8 million households whose fixed deals end this year,” he said.