Westminster turmoil raises fresh concerns over gilt yields, swap rates, and fixed-rate mortgage pricing
UK markets absorbed another blow on Thursday after health minister Wes Streeting resigned from the UK government, citing a loss of confidence in Prime Minister Keir Starmer's leadership.
The move has intensified speculation about a leadership challenge and raised fresh concerns over political instability.
Sterling edged 0.1% lower to around $1.351, while benchmark 10-year gilt yields fell nearly five basis points to 5.02% on the day.
Nigel Green (pictured right), chief executive of financial consultancy deVere Group, warned that the resignation could push gilts and sterling towards crisis territory if a leadership contest follows.
"The markets hate uncertainty, but they hate political vacuum even more," he said.
"A cabinet resignation followed by a leadership fight would signal that the government is losing control of itself while investors are already questioning the country's fiscal direction."
UK assets were already showing strain ahead of the resignation. The 10-year gilt yield had climbed to 5.13% earlier this week, its highest level since 2008, while 30-year gilt yields rose above 5.8%, a level last seen in 1998.
Elevated gilt yields translate directly into higher government borrowing costs, increased pressure on mortgage pricing, and a more expensive funding environment across the broader economy.
Nicholas Mendes (pictured right), mortgage technical manager at John Charcol, said the immediate concern for the mortgage market centred less on Streeting's resignation itself and more on what might follow.
"Markets do not like uncertainty, and this is exactly the sort of situation that can make them nervous," he said, echoing Green's statement.
"It is less about who is in charge today and more about what could come next: whether there is a leadership change, who eventually takes over, whether fiscal policy shifts, and whether that means more borrowing and spending. The identity of any new leader would matter because markets will judge the outcome through the lens of fiscal discipline."
Mendes noted that Streeting himself, despite triggering the current turbulence, may paradoxically be viewed by markets as a relatively stable leadership option. "Someone such as Wes Streeting may be viewed by markets as a steadier option, which could help reduce some of the pressure on gilts and swaps," he said.
"An outside name such as Al Carns may also be taken reasonably well, partly because markets would not immediately associate him with a significant loosening of fiscal policy."
He cautioned, however, that other potential candidates could generate greater market anxiety. "Names such as Angela Rayner, Ed Miliband or Andy Burnham may therefore create more concern in the gilt market if investors conclude that policy could shift towards higher borrowing, more spending or weaker fiscal rules," he explained. "That is not really about personalities. It is about how investors price the likely path for borrowing, inflation, and fiscal credibility."
The market reaction has already been visible in swap rates. Mendes noted that the two-, three-, and five-year swap rates were approximately 26 to 27 basis points higher than a month ago. "That is not helpful for fixed-rate mortgage pricing," he said.
He added that lenders were unlikely to reprice on the basis of a single political development, but would respond if elevated swap rates persisted. "If swaps stay elevated, lenders have less room to cut fixed rates, and some may decide to price more cautiously," Mendes said. "Until the political position is resolved, the market is likely to remain cautious."
For borrowers, Mendes advised against attempting to time the market around Westminster developments. "If you are close to buying or remortgaging and there is a deal that fits your budget and plans, secure it," he said. "You can keep reviewing and switch before completion if pricing improves, but waiting for cheaper rates while swaps are moving up is a gamble."
For the mortgage industry, Streeting's emergence as a potential prime ministerial candidate raises a further question: what would his leadership mean for housing policy?
Widely regarded as one of Labour's most effective communicators and a credible centrist figure, Streeting built his ministerial reputation on NHS reform. His public record on housing is largely confined to his constituency in Ilford North, where he has cited affordable housing as a local priority.
He has not set out a distinct national housing policy platform, leaving his position on planning reform, housebuilding targets, and mortgage market regulation largely undefined. Should he reach Downing Street, brokers and lenders would be navigating considerable uncertainty about the direction of housing and lending policy.
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