Before you panic about mortgages, here are the facts

There are plenty of views about the market – but this is one of those situations where views are less helpful than numbers, writes Hamish McRae

A number of lenders including the Halifax subsidiary of Lloyds Bank have paused making new mortgages (AP)

The surge in mortgage interest rates inevitably means a softer housing market – and the great question is whether they will also lead to a full-blown crash. What do we know?

Well, we know for a start that a number of lenders including the Halifax subsidiary of Lloyds Bank have paused making new mortgages. We know that the markets have pushed up the interest rates on government stock to above 4 per cent, and that the Bank of England is clearly going to boost its interest rates further. But we don’t how high rates will go, whether there will be a serious recession this winter, and – conversely – we don’t know how big the positive impact will be from the cuts in stamp duty. There are plenty of views about the market – but this is one of those situations where views are less helpful than numbers.

So some numbers. The core numbers are the cost of money to the lenders – and the easiest way to see that is to look at what the government has to pay. That is the anchor for interest rates that banks pay on the money market. Typically, banks will have to pay a bit more than the government. They also have to add on their admin costs and allow for the quite small risk of a borrower defaulting. So gilt yields are the floor – and that floor is a lot higher now than it was a few months ago.