Further warnings on knock-on effect of gilt rises

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The mortgage industry may be negatively affected by a rise in 10 year gilts as lenders struggle to finance low rate fixes, according to an analyst at Hargreaves Lansdown.

The yield on the benchmark 10-year gilt topped 1 per cent this week for the first time since the Brexit vote.

Hargreaves Lansdown investment analyst Laith Khalaf says: “Gilt yields have ticked up sharply over the last week, and given what’s happened on the currency markets it looks like a fair assumption that overseas investors are dumping UK government bonds.”

Echoing comments made to Mortgage Strategy last week, Khalaf adds that there may be knock on effects in the mortgage markets “as lenders may find they can’t finance new fixed term mortgages at the same low rates they could just a few weeks ago.”

However, Khalaf says companies with pension deficits would be winners in any continued rise in yields, while Chancellor Philip Hammond, who has hinted at boosting government spending on infrastructure, may be one of the losers from such a move.

“The new Chancellor may be hoping government borrowing costs don’t rise too much further, if he is planning a debt-fuelled spending spree on infrastructure in his Autumn Statement, as is now widely anticipated,” he says