This is because, claim flatshare website easyroommate.co.uk, all long-term lenders price their mortgages with reference to the price of gilts – or units of government debt in plain english - and mortgage rates are now rising as the cost of gilts rise.
Between October and the end of April, as the Conservative lead over Labour diminished, gilt yields increased by over half a percent. The websit’s research suggests that gilt yields will have to rise by a further 0.75 per cent to about 4.75 per cent in the wake of a hung parliament – higher if inflation returns as a serious threat. This will mean lenders could raise mortgage rates by three-quarters of a per cent.
Jonathan Moore, director of easyroommate.co.uk, said:
“Mortgages rates are linked to the wider financial market. If the wholesale financial market is concerned the hung parliament cannot cut the deficit, and inflation will rise, yields on gilts will rise – pushing up the cost of mortgages. A rise of three quarters of a per cent in gilt yields is a conservative estimate of the impact of the hung parliament.”
If gilt rates went up by just three-quarters of a per cent, and mortgage rates rose accordingly, higher mortgage rates would cost families an extra £624 next year on a new £118,000 mortgage – the average according to CML figures – or £52-a-month on a repayment mortgage. This is the equivalent of raising income tax by three points to 23% for someone earning the UK average wage of £25,800.
This would affect first-time buyers who were given a small boost by doubling the stamp duty tax-threshold, but will now see the benefit of this wiped out by the jump in mortgage rates, continuing the freeze in the mortgage market.
Experts warn that mortgages are already too expensive and restrictive, and that this election result will mean thousands more first-timers will be kept out of the market.