The dip reflects a decline in gilt yields and interest rate expectations, which both influence borrowing costs for banks, after Mr Hunt reversed the vast majority of the policies in the mini-Budget.
Then-chancellor Kwasi Kwarteng’s tax cuts triggered panic in financial markets and a mass withdrawal of mortgage deals. Mr Hunt scrapped almost all of these tax cuts in an announcement on Monday, which helped to somewhat calm financial markets.
But this marginal day-to-day decline does not come close to erasing the huge jump in mortgage rates recorded since Mr Kwarteng’s announcement. Two- and five-year fixed-rate deals were still 38pc and 35pc higher than on September 23, when the mini-Budget was announced.
The future trajectory of mortgage rates following Prime Minister Liz Truss’s resignation is unclear. Gilt yields – which influence borrowing costs for banks – fell initially in response to her resignation, but have since climbed back above 4pc due to uncertainty over who will become the new leader.
High inflation, which is currently more than five times the Bank of England’s target rate, also means further increases in the Bank Rate are unavoidable. Investors have priced in a peak in the Bank Rate at 5.25pc in June 2023, up from 2.25pc today. Any large drop in mortgage rates is therefore unlikely, even if the economic outlook becomes far more stable.
