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Mortgage rates could soar for borrowers amid the UK’s deepening financial crisis.

The country’s borrowing rocketed to a 28-year high on Wednesday because of renewed turbulence on bond markets.

Yields on 30-year UK bonds, known as gilts, climbed above 5.92%, the highest level since 1998, while 10-year gilt yields rose above 5.29% , the highest since 2008.

Russ Moul, AJ Bell investment director, said: Credit card, mortgage and auto loan interest rates will rise if bond yields rise, as the lenders seek to preserve loan book margins and manage their risk.”

These decisions would undermine Prime Minister Andy Burnham’s push to ease cost of living pressures.

The UK’s swap rates – the interest rates that banks charge when they borrow from each other – have been pushed up by the rise in gilt yields.

The five-year swaps rate on Wednesday rose above 4.52%, their highest level since October 2023.

Experts have warned this could result in higher interest rates on fixed-term mortgages.

Tom Simpson, managing director of homes at Yorkshire Building Society, said swaps rates were more volatile in March at the start of the Iran war.

Speaking to Radio 4’s Today Programme, he said: “All things being equal, you would expect a modest increase in mortgage rates based on what we’ve seen so far. A 0.1 [percentage point] increase, which is what we’ve seen over the last week, is much less of an increase than when we saw a 0.5 [percentage point] increase in 10 days in March when the Iran war broke out.”

All eyes are on Chancellor John Healey ahead of his October 28 budget when he could hike taxes.

The former Defence Secretary, who quit Sir Keir Starmer’s government over a lack of funding for his sector, is tasked with finding an extra £1.2bn a year to fund a gap in the defence investment plan while also cutting expenditure across other government departments.