As gilt yields hit levels not seen since 1998, Nicholas Mendes warns borrowers to act before rates move again
Thirty-year gilt yields have broken 6% for the first time since 1998, driven by a global bond sell-off fuelled by inflation fears and Middle East conflict keeping oil supplies tight. Ten-year yields have risen to their highest level since 2007, while five-year yields are at levels last seen in 2008, and it is the shorter end of the curve that matters most to mortgage borrowers.
The UK's borrowing costs are now the highest in the G7, with gilt yields rising more sharply than equivalent benchmarks in the US or Germany throughout 2026, suggesting domestic pressures are amplifying the global move. Chancellor John Healey faces a difficult environment ahead of the Budget on 28 October, with every basis point increase in yields adding to the government's debt-servicing bill.
For mortgage borrowers, the consequences are more immediate. Nicholas Mendes (pictured top), mortgage technical manager and head of marketing at John Charcol, said the scale and speed of the move sets this apart from the pressure that has been building in recent weeks. "Five-year gilt yields are at their highest since 2008, and it is these shorter-dated rates that feed most directly into mortgage pricing," he said. "For borrowers, today's moves add to pressure that has been building for weeks."
How fixed rates are affected
Banks price their fixed-rate mortgages based on swap rates, which track two and five-year gilt yields closely. Those wholesale rates had already been moving before today's sell-off. Mendes said two-year swap rates had risen from 4.25% to 4.59% over the past month, with five-year swap rates moving from 4.35% to 4.7% over the same period, adding roughly a third of a percentage point to the cost of funding a fixed deal.
Lenders cannot absorb that kind of movement indefinitely, and the sharpness of today's gilt move is likely to accelerate their response. "When funding costs move this quickly, changes can come within days and deals can be pulled with very little notice," Mendes said. "Uncertainty makes it worse, because lenders add an extra margin to their rates when they are unsure where their costs will be next week."
The standard variable rate risk
Variable rates work differently. Trackers follow the Bank of England base rate directly and will not react to gilt movements unless the Monetary Policy Committee acts. Markets are pricing in a rate rise at the next decision on 5 November, with further increases expected into 2027.
That outlook makes it particularly important for borrowers to avoid drifting onto their lender's standard variable rate when a fixed deal expires. Mendes set out the numbers plainly. On a £150,000 repayment mortgage with 20 years remaining, a borrower currently on 4.5% pays around £949 a month. Falling onto the average standard variable rate of 7.13% would push that to approximately £1,175, whereas remortgaging to a new fix at 5.5% would bring payments down to around £1,032. "Over a year, that is a saving of roughly £1,710 simply by avoiding the standard variable rate," he said.
Coming off fixed deals
The borrowers under most pressure are those rolling off five-year fixes taken out in 2021, when the base rate stood at 0.1% and fixed rates were close to record lows. Mendes noted that two-year swap rates are almost 0.9 percentage points above where they stood a year ago and roughly 1.3 percentage points above their February low, even though the base rate has not moved since last December. Fixed rates price off where markets expect interest rates to go, not where they are today, and markets currently expect the base rate to rise from 3.75% towards 5% by 2028.
Many of those households will see monthly payments rise by several hundred pounds, arriving alongside higher energy costs and broader cost-of-living pressures. Mendes urged anyone concerned about affording a new payment to contact their lender or a broker early. Lenders signed up to the Mortgage Charter, reaffirmed in March, can offer options such as extending the mortgage term or temporarily switching to interest-only.
Acting early and the broker advantage
Borrowers whose fixed rate ends within the next six months can generally secure a new rate now, locking in some protection while retaining the option to move to a better deal if conditions improve before the new mortgage starts. Mendes pointed to Nationwide as one lender that allows a broker to reserve a product once a decision in principle is in place, without requiring a full application, as long as the mortgage offer is issued within 90 days.
On the choice between a product transfer and a remortgage, Mendes cautioned against defaulting to the easier option. A remortgage can typically be secured up to six months before an existing deal expires, giving borrowers a longer runway than product transfer windows, and genuine optionality many do not realise they have.
"A broker can keep an eye on the market afterwards and, where the lender allows it, move the borrower onto a better rate if rates improve before the new mortgage starts," he said. "Lenders will not usually contact a borrower after they have submitted an application to tell them a cheaper rate has become available or automatically move them onto it."
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