UK borrowing costs hit a 27-year high, but brokers suggest this will only affect longer-term mortgages.  

The yield on 30-year government bonds jumped to 5.698% today, the highest level since 1998. 

The hike comes as markets prepare for Chancellor Rachel Reeves’ Budget, expected in November, where she is expected to set out plans to raise as much as £20bn to plug a hole in the public finances.   

However, investors fear Labour’s tax-raising measures may slow growth. 

Hargreaves Lansdown head of money and markets Susannah Streeter says: “With so many options for raising taxes being bandied about during the summer, there appears to be concern that the decisions made might not be sufficiently thought through. 

“The worry isn’t just that government coffers won’t be replenished, but that they will be filled at the expense of growth, leading to a vicious circle emerging.” 

However, John Charcol mortgage technical manager Nicholas Mendes points out that jumps in 30-year gilt yields “do feed into mortgage pricing, but mainly at the long end of the market”. 

The 10-year Sonia swap rate, which mortgage rates are based on, is 4.19% compared to 3.96% at the start of August and 3.63% a year ago. 

While 30-year Sonia swaps are 4.73%, compared to 4.44% at the start of August and 3.73% a year ago. 

Mendes says that this, for instance, “makes ten-year fixed mortgages relatively expensive, as lenders’ costs of hedging at those maturities are much higher”. 

By contrast, two- and five-year Sonia swaps are 3.73% and 3.83%, lower than they were a year ago. These shorter-term loans account for around three-quarters of all outstanding UK mortgages. 

“The practical effect is that shorter fixed rates remain the most competitive, while longer fixes carry a premium,” adds Menedes.  

He points out: “For borrowers, the choice comes down to priorities — if flexibility and lower rates now are key, shorter fixes look more attractive.  

“If long-term certainty is worth paying for, a ten-year deal can still make sense, but the gap in pricing explains why those products have not come down in the same way.” 

Last month, a series of reports surfaced, which said the Chancellor is considering raising a range of property taxes as part of the Budget.  

These would cover stamp duty and council tax reforms, a so-called mansion tax for higher value homes and the introduction of national insurance on rental income for landlords.