UK mortgage rates have climbed again as Barclays raised its borrowing costs for the second time this week, following sharp increases in government bond yields that have pushed mortgage expenses to levels not seen since 1998. This development comes amid heightened market volatility driven by inflation concerns linked to the Middle East conflict and uncertainty around fiscal policies ahead of the upcoming Budget.

The yield on 30-year UK government bonds, known as gilts, surpassed 6.02 percent—its highest point since the late 1990s—making the UK the first major global economy to reach such borrowing costs since Italy’s debt crisis in 2012. Meanwhile, 10-year gilt yields also surged above 5.5 percent for the first time since 2007. These trends have intensified worries about inflation, rising government debt, and the government’s approach to managing public spending, putting additional pressure on Chancellor John Healey.

As lenders face increased funding costs driven by the higher yields, mortgage deals are being rapidly repriced or withdrawn. Over 1,000 mortgage products have been discontinued in the past month as financial institutions adjust to the changing environment. Data from Moneyfacts shows a dramatic reduction in competitive mortgage offers: the number of two-year fixed-rate deals below 5 percent fell from 630 at the start of September to just five, while five-year fixed options dropped from 638 to seven during the same period. Current average rates stand near 5.93 percent for two-year fixes and 5.95 percent for five-year fixes.

Several other lenders, including Nationwide, Virgin Money, and TSB, have also raised mortgage rates this week as a direct response to the evolving market conditions. Industry commentators suggest further increases are likely. David Hollingworth, associate director at broker L&C Mortgages, noted that Barclays’ repeated hikes reflect how swiftly the mortgage market is adapting. He cautioned that continued market turbulence is expected to push mortgage rates higher, increasing monthly payments for borrowers.

Higher borrowing costs are expected to impact the housing market by making mortgages less affordable for potential buyers. Dan Coatsworth of AJ Bell explained that as gilt yields rise, lenders’ funding expenses climb, which typically leads to higher mortgage rates. This often results in stricter affordability checks, reducing the number of eligible buyers and potentially cooling housing market activity.

The combination of geopolitical uncertainty, inflationary pressures, and fiscal policy concerns is contributing to an uncertain economic outlook for UK households, with mortgage borrowers among those facing more financial strain amid rising interest rates.