Why Rachel Reeves’ Budget Blunder Could Be A Nightmare For UK Homebuyers and Mortgage Borrowers

Rachel Reeves’ latest Budget has triggered a political row over whether the Chancellor overstated a “black hole” in the public finances to justify large tax rises – and that argument matters for UK mortgage borrowers because it affects how confident investors feel about lending to the government, where gilt yields and SONIA swaps go next, and ultimately what lenders charge on fixed-rate mortgages.

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What Is Moving UK Mortgage Pricing Right Now

For most borrowers, the headline is still the Bank of England’s 4% interest rate, held at that level at the November meeting, with the Bank hinting that a first cut could come as soon as December if inflation keeps easing.

But the rate on your next two- or five-year fix is driven more by:

• Gilt yields – the interest the government must pay on its bonds

• SONIA swap rates – the prices at which banks lock in future interest costs, used heavily when building fixed mortgage products

The Bank of England expects inflation to slow but not return to its 2% target until 2027, meaning markets still assume interest rates will only fall gradually from here.

The Office for Budget Responsibility now forecasts that inflation will average 3.5% in 2025 and 2.5% in 2026, only getting back to target in 2027 – a slower journey than it expected earlier in the year, which encourages the view that borrowing costs will stay relatively high for longer.

This article follows Mortgage One’s established format for helping borrowers understand how political and economic moves may affect mortgage pricing.

What Rachel Reeves Announced – And Why It Sparked A Row

Rachel Reeves’ Budget was billed as a plan to stabilise the public finances while funding priorities such as the NHS and welfare changes. The government’s own document stresses a strategy of reducing borrowing and debt over time to avoid “spending ever more taxpayer money on debt interest”.

To do that, the Chancellor announced:

• Around £26bn of tax rises over the forecast period

• A three-year extension of the freeze to income tax thresholds, which the OBR says will raise billions via so-called “fiscal drag” as wages rise but thresholds do not

• Measures to support investment and energy bills, alongside higher spending on public services

The controversy – described by political opponents as a Budget “blunder” – comes from how Reeves framed the numbers. Days before the speech, the OBR told her that on its central forecast she was on course for a £4.2bn surplus in 2029-30, meaning she technically met her fiscal rule without extra tax rises.

However, Reeves has said she judged that buffer to be far too small by historic standards and wanted to build much more “headroom” to reassure investors and give the Bank of England space to cut rates safely, so she raised taxes anyway and took the buffer up to roughly £22bn.

Opponents argue she should have explained the OBR surplus more clearly to Parliament and the public, accusing her of talking up a non-existent “black hole”. Reeves rejects that and says her priority is long-term economic stability.

Did The Budget ‘Blunder’ Spook Markets Or Calm Them?

For mortgage borrowers the crucial question is how markets reacted, not who wins the political argument.

Despite an awkward build-up – including an early public release of the OBR forecast that briefly pushed gilt yields higher before the speech – the overall reaction from bond investors has been relatively calm.

Analysis from investment and pensions commentators suggests that, while there was plenty of drama on the day, UK equities and government bonds actually rose slightly after the Budget, a sign that markets were more relieved than alarmed.

One detailed review noted that the gilt market gave the Autumn Budget a “cautious thumbs-up”, suggesting Reeves’ plan just about passed the “sniff test” for credibility despite heavy back-loading of some tax rises.

At the long end of the curve, 30-year gilt yields fell by around 11 basis points to about 5.21% in the immediate aftermath, with 10-year yields also edging lower – small moves, but in the right direction for anyone hoping fixed mortgage rates can continue to ease.

Some property-focused market watchers have even said that the calmer tone in money markets after the Budget could allow lenders to trim fixed mortgage rates further if the stability holds.

However, the OBR has still warned that, even with extra tax rises and a bigger buffer, the UK’s public finances remain in a “vulnerable” position, with slower growth and higher-than-expected inflation leaving little room for further shocks.

If investors start to doubt the government’s grip on debt or see further political rows as a sign of instability, gilt yields could easily move higher again – and mortgage pricing would follow.

How This Could Affect Homebuyers, Remortgagers And Landlords

For first-time buyers, the Budget’s combination of higher taxes and only gradual falls in borrowing costs could squeeze affordability from two sides: net pay may not stretch as far once threshold freezes and higher rates bite, while mortgage stress-tests must still assume that interest rates remain relatively elevated.

Existing homeowners coming to the end of a fixed deal face a more nuanced picture. If markets stay reassured that the Chancellor is serious about stabilising debt, then the gentle downward drift in swap rates we have seen at times this year could resume, giving lenders scope to compete a little harder on pricing.

On the other hand, if the public row over whether Reeves mis-described the fiscal outlook escalates, or if future Budgets need further tax rises or spending cuts to keep investors on side, that uncertainty could keep gilt yields higher than they might otherwise have been. In that scenario, fixed mortgage rates may stay sticky or even move up again at popular terms such as two and five years.

Buy-to-let landlords face a further challenge: the same tax changes that increase the overall burden on higher-rate taxpayers also interact with existing property-specific rules, meaning some landlords could see post-tax returns fall even if rents rise. Combined with still-elevated mortgage rates, that may drive more landlords to reassess portfolios, with knock-on effects for tenants and first-time buyers.

In short, the “nightmare” scenario for borrowers is not today’s Budget itself, but a loss of market confidence if investors come to see the government’s choices as either economically damaging or politically unsustainable – something that would tend to push up funding costs just when households are hoping for relief.

Key Numbers For Borrowers To Watch

• Bank Rate: 4.00% (Bank of England base rate as of 7 November 2025)

• CPI inflation: 3.6% year-on-year in October 2025

• OBR forecast for Bank Rate: falls to around 3.7% in early 2026 before settling back towards 4% later in the decade

• Market reaction to Budget: long-dated gilt yields fell around 10–11 basis points on the day, signalling modest investor relief rather than panic

Figures as of 30 November 2025, London.

The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. If you’d like to understand what these moves could mean for you, speak to Mortgage One, we can explain your options and timings based on your specific circumstances.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

FAQs

1. Can Rachel Reeves’ Budget directly change my mortgage rate?
   No. The Bank of England sets Bank Rate, and individual lenders set mortgage pricing. However, the Budget can influence gilt yields and SONIA swaps, which are key ingredients in fixed-rate mortgage costs, so political decisions can still nudge rates up or down over time.

2. Why are investors upset about talk of a “black hole” in the public finances?
   Critics say the Chancellor highlighted a large gap in the public finances without spelling out that the OBR was actually forecasting a small surplus against her main fiscal rule, arguing that this was used to justify extra tax rises. Reeves says she was transparent and simply chose to build a much bigger safety margin to reassure markets.

3. Did the Budget cause gilt yields to spike like in 2022?
   No. While an early leak of the OBR forecast caused some short-lived volatility, overall gilt yields eased slightly after the speech and analysts said the Budget passed markets’ basic credibility test – very different from the sharp sell-off seen during the September 2022 “mini-Budget”.

4. Could this Budget still turn into a “nightmare” for mortgage borrowers later on?
   It could if investors lose faith in the UK’s fiscal path, pushing borrowing costs higher and feeding into mortgage pricing. The OBR has warned that the public finances remain vulnerable despite the tax rises, so future shocks or policy changes could still unsettle markets.

5. What should I watch if I am planning to buy or remortgage soon?
   Keep an eye on Bank of England decisions, inflation figures and UK gilt yields, especially at two-, five- and ten-year maturities, because they shape SONIA swaps and fixed-rate mortgage pricing. Market commentary after the Budget suggests conditions are currently calm but sensitive to new data and policy announcements.