Hiten Ganatra is Managing Director at Visionary Finance
The resignation of Keir Starmer makes him the sixth Prime Minister to leave office in under a decade. For those of us on the frontline, advising mortgage borrowers day in and day out, the pattern has become painfully familiar and includes political shock, market reaction, higher borrowing costs, and real people paying the price.
But while the Westminster carousel has become almost routine, the financial consequences have not, as each departure has left its own distinct mark on the mortgage market. The data tells a clear and consistent story, as markets do not punish resignations themselves. They punish the fiscal recklessness, policy uncertainty, and loss of credibility that resignations so often expose.
Following the Brexit referendum on 24th June 2016, and David Cameron’s announcement that he would resign as Prime Minister, financial markets reacted sharply. Bloomberg’s Sterling Spot Index fell around six per cent in a single session, its largest one-day decline on record, while investors rushed into UK government bonds, driving the 10-year gilt yield down by almost 30 basis points to a then record low of about 1.09 per cent.
Mortgage rates remained relatively low after the referendum, supported by the Bank of England‘s decision to cut Bank Rate to 0.25 per cent and introduce further monetary stimulus.
But sterling never fully recovered. Before the referendum, the pound had often traded between around $1.40 and $2.00 against the dollar. Since 2016 it has generally traded much closer to $1.30. That weaker exchange rate has increased the cost of imports, contributed to higher inflation, and added to pressure on household living costs.
Fast forward to July 2022. Boris Johnson’s resignation in July 2022 came against a backdrop of surging inflation, an energy shock and rising interest rates. CPI inflation hit 10.1 per cent in July 2022, with electricity prices up 54 per cent and gas prices up 95.7 per cent year on year. The Bank of England had already lifted Bank Rate to 1.25 per cent in June, before raising it again to 1.75 per cen in August.
Market reaction to Johnson’s resignation was relatively calm. Reuters reported that sterling actually held gains on the day, while UK assets had “largely reacted calmly”, with the worsening global economic backdrop seen as more important. NatWest also described the reaction as a modest sterling bounce, marginally higher long-term bond yields and unchanged hawkish Bank of England rate expectations.
The longer-term sterling move was still negative. Quilter’s analysis found GBP/USD fell 7.2 per cent in the three months after Johnson’s resignation but framed this as part of a period driven by global inflation and the energy shock after Russia’s invasion of Ukraine, rather than the resignation itself. Mortgage pricing was already moving higher, with Moneyfacts saying on 11 July 2022 that fixed mortgage rates were rising at a record pace as lenders revised and repriced ranges.
Then came the episode that should serve as a warning to every politician tempted by fiscal shortcuts. Liz Truss’s September 2022 mini-budget included £45 billion of largely unfunded tax cuts, triggering one of the sharpest selloffs in the gilt market in modern history. Thirty-year gilt yields rose by around 1.2 percentage points in just three trading days, briefly reaching 5 per cent, forcing the Bank of England to step in to restore market stability. For the mortgage market, the impact was immediate. According to Moneyfacts, the average two-year fixed mortgage rate rose from 3.66 per cent at the start of September to 6.51 per cent by 20 October, while lenders withdrew a record 935 mortgage products in a single day.
The Resolution Foundation estimated that the Truss episode ultimately added around £30 billion to the UK’s fiscal hole through a combination of surviving tax cuts and permanently higher borrowing costs. By the time Truss resigned, sterling had recovered almost 10 per cent from the record lows reached after the mini budget as markets welcomed the restoration of fiscal credibility. But for the millions of households whose fixed-rate mortgages expired over the following months, the damage had already been done. The Bank of England estimated that around four million owner-occupier mortgages would refinance onto higher rates, adding an average of around £3,000 a year to mortgage costs.
By comparison, the immediate market reaction to Keir Starmer’s departure this month was relatively muted. Sterling weakened modestly, 10-year gilt yields edged higher and UK equities were little changed, suggesting markets had largely priced in the resignation.
Yet the calmer headline figures mask growing pressure beneath the surface. Five-year sterling swap rates, which directly influence fixed-rate mortgage pricing, have risen by around 25 to 30 basis points over the past month. Meanwhile, 10-year gilt yields reached 5.137 per cent in May, their highest level since 2008, while 30-year yields climbed to almost 5.8 per cent, the highest since 1998. The UK also continues to face among the highest long-term borrowing costs in the G7, reflecting persistent concerns over inflation, fiscal discipline and economic growth.
These are not abstract numbers. They are the kitchen-table reality for the families I advise every day. Approximately 1.8 million fixed-rate mortgage deals are due to expire in 2026, many of them secured at historically low rates that borrowers simply will not see again.
These households are rolling into a market where average two-year fixed rates sit at 5.64 per cent, five-year fixes at 5.60 per cent, and standard variable rates (SVR) at a punishing 7.13 per cent.
To put that into perspective, a borrower with a £250,000 mortgage on a 25-year term who secured a two-year fix at two per cent in 2024 was paying approximately £1,058 per month. Rolling onto today’s average two-year fix increases that payment to around £1,554, a rise of nearly £500 per month, or £6,000 per year. Rolling onto the average SVR pushes the monthly payment to approximately £1,777, an astonishing increase of £8,628 per year.
Simultaneously, we are witnessing a generational fracture in the housing market. The average first-time buyer in England is now 34 years old, up from 32 before the pandemic, and the average first-time buyer deposit now exceeds £61,000. The Institute for Fiscal Studies estimates that homeownership among 25 to 34-year-olds has fallen from 55 per cent in 1997 to around one-third today, illustrating just how much harder younger generations now find it to get onto the housing ladder.
Andy Burnham has now secured the backing to become the next Prime Minister, and he arrives in Downing Street having already given gilt investors reason to pause. He previously suggested Britain was “in hock” to debt markets, although he has since sought to row back from those comments by stressing his commitment to Labour’s fiscal rules and reducing debt. Words are one thing, the gilt market will now be watching what he actually does, as it has a long memory and very little patience.
Labour’s political pressure is equally clear. In May, the party lost 1,496 council seats and control of 38 councils, while Reform surged across English local government. The temptation for Burnham to reach for higher spending and looser fiscal policy to repair a weakening electoral coalition will be considerable.
If he gives in to that temptation, we know exactly what follows. We saw it under Truss, higher gilt yields, higher swap rates, higher mortgage costs, and ordinary homeowners picking up the bill.
The lesson of the past decade could not be clearer, as political stability and fiscal credibility are not optional luxuries for governments. They are the foundations on which the mortgage market, and with it the financial security of millions of British households, depends.
Hiten Ganatra is Managing Director at Visionary Finance
The resignation of Keir Starmer makes him the sixth Prime Minister to leave office in under a decade. For those of us on the frontline, advising mortgage borrowers day in and day out, the pattern has become painfully familiar and includes political shock, market reaction, higher borrowing costs, and real people paying the price.
But while the Westminster carousel has become almost routine, the financial consequences have not, as each departure has left its own distinct mark on the mortgage market. The data tells a clear and consistent story, as markets do not punish resignations themselves. They punish the fiscal recklessness, policy uncertainty, and loss of credibility that resignations so often expose.
Following the Brexit referendum on 24th June 2016, and David Cameron’s announcement that he would resign as Prime Minister, financial markets reacted sharply. Bloomberg’s Sterling Spot Index fell around six per cent in a single session, its largest one-day decline on record, while investors rushed into UK government bonds, driving the 10-year gilt yield down by almost 30 basis points to a then record low of about 1.09 per cent.
Mortgage rates remained relatively low after the referendum, supported by the Bank of England‘s decision to cut Bank Rate to 0.25 per cent and introduce further monetary stimulus.
But sterling never fully recovered. Before the referendum, the pound had often traded between around $1.40 and $2.00 against the dollar. Since 2016 it has generally traded much closer to $1.30. That weaker exchange rate has increased the cost of imports, contributed to higher inflation, and added to pressure on household living costs.
Fast forward to July 2022. Boris Johnson’s resignation in July 2022 came against a backdrop of surging inflation, an energy shock and rising interest rates. CPI inflation hit 10.1 per cent in July 2022, with electricity prices up 54 per cent and gas prices up 95.7 per cent year on year. The Bank of England had already lifted Bank Rate to 1.25 per cent in June, before raising it again to 1.75 per cen in August.
Market reaction to Johnson’s resignation was relatively calm. Reuters reported that sterling actually held gains on the day, while UK assets had “largely reacted calmly”, with the worsening global economic backdrop seen as more important. NatWest also described the reaction as a modest sterling bounce, marginally higher long-term bond yields and unchanged hawkish Bank of England rate expectations.
The longer-term sterling move was still negative. Quilter’s analysis found GBP/USD fell 7.2 per cent in the three months after Johnson’s resignation but framed this as part of a period driven by global inflation and the energy shock after Russia’s invasion of Ukraine, rather than the resignation itself. Mortgage pricing was already moving higher, with Moneyfacts saying on 11 July 2022 that fixed mortgage rates were rising at a record pace as lenders revised and repriced ranges.
Then came the episode that should serve as a warning to every politician tempted by fiscal shortcuts. Liz Truss’s September 2022 mini-budget included £45 billion of largely unfunded tax cuts, triggering one of the sharpest selloffs in the gilt market in modern history. Thirty-year gilt yields rose by around 1.2 percentage points in just three trading days, briefly reaching 5 per cent, forcing the Bank of England to step in to restore market stability. For the mortgage market, the impact was immediate. According to Moneyfacts, the average two-year fixed mortgage rate rose from 3.66 per cent at the start of September to 6.51 per cent by 20 October, while lenders withdrew a record 935 mortgage products in a single day.
The Resolution Foundation estimated that the Truss episode ultimately added around £30 billion to the UK’s fiscal hole through a combination of surviving tax cuts and permanently higher borrowing costs. By the time Truss resigned, sterling had recovered almost 10 per cent from the record lows reached after the mini budget as markets welcomed the restoration of fiscal credibility. But for the millions of households whose fixed-rate mortgages expired over the following months, the damage had already been done. The Bank of England estimated that around four million owner-occupier mortgages would refinance onto higher rates, adding an average of around £3,000 a year to mortgage costs.
By comparison, the immediate market reaction to Keir Starmer’s departure this month was relatively muted. Sterling weakened modestly, 10-year gilt yields edged higher and UK equities were little changed, suggesting markets had largely priced in the resignation.
Yet the calmer headline figures mask growing pressure beneath the surface. Five-year sterling swap rates, which directly influence fixed-rate mortgage pricing, have risen by around 25 to 30 basis points over the past month. Meanwhile, 10-year gilt yields reached 5.137 per cent in May, their highest level since 2008, while 30-year yields climbed to almost 5.8 per cent, the highest since 1998. The UK also continues to face among the highest long-term borrowing costs in the G7, reflecting persistent concerns over inflation, fiscal discipline and economic growth.
These are not abstract numbers. They are the kitchen-table reality for the families I advise every day. Approximately 1.8 million fixed-rate mortgage deals are due to expire in 2026, many of them secured at historically low rates that borrowers simply will not see again.
These households are rolling into a market where average two-year fixed rates sit at 5.64 per cent, five-year fixes at 5.60 per cent, and standard variable rates (SVR) at a punishing 7.13 per cent.
To put that into perspective, a borrower with a £250,000 mortgage on a 25-year term who secured a two-year fix at two per cent in 2024 was paying approximately £1,058 per month. Rolling onto today’s average two-year fix increases that payment to around £1,554, a rise of nearly £500 per month, or £6,000 per year. Rolling onto the average SVR pushes the monthly payment to approximately £1,777, an astonishing increase of £8,628 per year.
Simultaneously, we are witnessing a generational fracture in the housing market. The average first-time buyer in England is now 34 years old, up from 32 before the pandemic, and the average first-time buyer deposit now exceeds £61,000. The Institute for Fiscal Studies estimates that homeownership among 25 to 34-year-olds has fallen from 55 per cent in 1997 to around one-third today, illustrating just how much harder younger generations now find it to get onto the housing ladder.
Andy Burnham has now secured the backing to become the next Prime Minister, and he arrives in Downing Street having already given gilt investors reason to pause. He previously suggested Britain was “in hock” to debt markets, although he has since sought to row back from those comments by stressing his commitment to Labour’s fiscal rules and reducing debt. Words are one thing, the gilt market will now be watching what he actually does, as it has a long memory and very little patience.
Labour’s political pressure is equally clear. In May, the party lost 1,496 council seats and control of 38 councils, while Reform surged across English local government. The temptation for Burnham to reach for higher spending and looser fiscal policy to repair a weakening electoral coalition will be considerable.
If he gives in to that temptation, we know exactly what follows. We saw it under Truss, higher gilt yields, higher swap rates, higher mortgage costs, and ordinary homeowners picking up the bill.
The lesson of the past decade could not be clearer, as political stability and fiscal credibility are not optional luxuries for governments. They are the foundations on which the mortgage market, and with it the financial security of millions of British households, depends.