More than half a million homeowners will see an average £280 added to their annual mortgage bills after the recent turmoil in UK bond markets, analysis shows.
The report from the Resolution Foundation also reveals that the Treasury will have to spend an extra £7billion a year on debt interest costs as a result of the turbulence – putting the public finances ‘on a knife edge’.
It comes after a sell-off of UK bonds, known as gilts, earlier this month – which resulted in a spike in government borrowing costs. They had already risen since the Budget.
The turmoil was initially part of a global bond market sell-off but investors soon lasered in on the weakness of the UK economy and fears that Labour had no plan for growth.
And while markets have since calmed, government borrowing costs are still higher than they were predicted to be at the time of Rachel Reeves’s Budget last October.
That will have an impact on home owners because bond market movements affect the mortgage rates offered by lenders.
For 570,000 households due to roll off five-year fixed term deals in 2025 it will mean annual costs rise by £2,700 on average, the Resolution Foundation calculated.
That is £280 higher than would have been the case under market conditions forecast at the time of the Budget.
More than half a million homeowners will see an average £280 added to their annual mortgage bills after the recent turmoil in UK bond markets, analysis shows (stock photo)
For 570,000 households due to roll off five-year fixed term deals in 2025 it will mean annual costs rise by £2,700 on average, the Resolution Foundation calculated (stock photo)
The public finances have also been put in jeopardy as the Chancellor only gave herself £10billion of ‘headroom’ to meet her fiscal rule to balance the books.
The deterioration of UK growth also threatens to derail the outlook for public finances when the Office for Budget Responsibility (OBR) publishes its next forecasts in March.
If that leaves the Chancellor on course to miss fiscal targets, it may mean she has to cut spending or hike taxes, the Resolution Foundation said.
James Smith, research director at the think-tank, said: ‘In her Budget last autumn, the Chancellor set out new fiscal rules but left herself very little wiggle room against breaking them.
‘Market volatility since the Budget has put the public finances under pressure, with higher gilt yields adding £7billion to debt servicing costs.
‘While other factors will also affect the OBR’s forecast, the chance of the Chancellor falling foul of her fiscal rules remains on a knife edge.
‘Having set out these rules only last autumn, and repeatedly re-committed to them in recent weeks, the Chancellor will have to meet them on March 26 or risk further market jitters.
‘While the Chancellor is rightly focused on fleshing out her long-term strategy for economic growth, tough short-term decisions, including fresh tax rises or spending cuts, may also be needed in the coming weeks to demonstrate her commitment to sustainable public finances.’
