Interest rates have been moving in the wrong direction since the 30 October Budget, says Knight Frank, causing a bout of indigestion for the housing market.
The agent said the five-year government bond yield was trading above 4.4% last Thursday, which compares to less than 3.9% at the start of October. A higher yield on government debt typically means lower demand among investors because of risks around creditworthiness, which pushes mortgage costs higher.
The yield is notably above the estimated figure issued by the Office for Budget Responsibility alongside the Budget. It said the five-year yield would break through 4% in 2027 before rising to 4.4% only in the second half of 2029.
The agent added that money markets were pricing in a bank rate of between 4% and 4.25% in December 2025, which compared to an expectation of less than 3.5% two months ago.
None of this is good news for the mortgage market, said Knight Frank, with lenders edging rates higher.
Knight Frank said that while it will take a few more months before the full impact is felt in the housing market, it expected growing downwards pressure on prices and transaction volumes as the effect of higher rates takes its toll.
The election of Donald Trump in the US has only added a layer of unpredictability around what will happen next in global bond markets, it added.
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