Would a change of prime minister increase my mortgage costs?

Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in, and we will get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at money@theipaper.com.

Question: I’m due to remortgage later this year and have been watching the speculation about whether there could be a change of prime minister. Some of the comments from potential successors, particularly around borrowing and the bond markets, seem to have made investors nervous. Could a change in prime minister affect mortgage rates, and should borrowers be worried that fixed-rate deals could become more expensive?

Answer: A change in prime minister could affect mortgage rates, but probably not in the direct way many borrowers might assume.

Mortgage rates are not set by the person in No 10. Fixed-rate pricing is mainly driven by swap rates, gilt yields, Bank of England expectations, lender funding costs, and the wider inflation outlook.

Politics only really matters for mortgages when it changes what markets think about borrowing, inflation, or the credibility of the government’s economic plan. These can change swap rates and, therefore, lender funding costs.

That is the part many borrowers underestimate.

A prime minister can change, but if markets believe the broad fiscal direction is the same, the impact on mortgage pricing may be limited. If investors start to think a new government would borrow more, loosen fiscal policy, or make inflation harder to control, gilt yields can move higher. Swap rates can then follow, and that can make it harder for lenders to reduce fixed mortgage rates.

The issue is less about the name of the prime minister and more about the market reaction to what that person represents.

Andy Burnham, one of those who has been mentioned as a potential future leader, has made comments about Britain being too “in hock” to bond markets, and these comments are relevant because investors are already sensitive to UK borrowing and fiscal credibility.

That does not mean he would automatically be bad for mortgage rates. Markets would look at the actual policy position, not just one phrase.

He has since sought to reassure markets by talking about fiscal rules and the need for a plan to get debt down. That matters because bond investors want to see that any future prime minister understands the limits around borrowing and public spending.

But markets would still look closely at whether any future policy shift might mean higher borrowing, looser fiscal discipline or more interventionist economic policy without a clear funding plan. If that were the perception, gilt yields could come under pressure.

For borrowers, the risk is that higher gilt yields feed into swap rates, which then keep fixed mortgage pricing higher for longer.

The reverse is also true. A candidate seen as offering continuity, fiscal restraint or a clearer economic plan may be easier for markets to digest. That would not mean mortgage rates suddenly fall overnight, but it could remove some of the political risk premium sitting in the background.

The honest answer is that political change alone is unlikely to be the main driver of mortgage rates.

The bigger forces are still inflation, energy prices, global bond markets, tariff uncertainty, geopolitical risk and what the Bank of England is expected to do next.

If inflation expectations ease and markets begin to price in a lower path for Bank Rate, lenders may have more room to reduce fixed rates. In that environment, a change in prime minister might matter only at the margins.

But if political uncertainty arrives at the same time as higher energy prices, sticky inflation and nervous gilt investors, the effect could be more noticeable. Markets do not like uncertainty, particularly when public finances already look stretched.

For borrowers, the practical point is not to try to second-guess a leadership contest. The question is whether swap rates are moving in your favour or against you.

If you are within six months of your current deal ending, it is usually worth reviewing your options rather than waiting for politics to settle. Many lenders allow borrowers to secure a new rate in advance, and if rates improve before completion there may be scope to switch to a better deal.

That does not mean everyone should rush into a fix. It means borrowers should know what they can secure now, what the risks are if pricing moves against them, and whether their budget could cope if rates stay higher for longer.

A change in prime minister might move the mortgage market, but only because it changes the funding market behind it. For most borrowers, the bigger risk is leaving the decision too late and having fewer options if lenders reprice quickly.

المصدر: iNews