Financial markets swallowed last month’s Budget, but it is causing a bout of indigestion, says a candid summary by lettings agency and property consultancy Knight Frank.

It says that as a result of the October 30 fiscal statement, mortgage lenders’ rates have been creeping in the wrong direction. The five-year government bond yield was trading above 4.4% towards the end of last week which compares to less than 3.9% at the start of October.

A higher yield on government debt typically means lower demand among investors because of risks around creditworthiness, which pushes mortgage costs higher.

Knight Frank says the yield is notably above the estimated figure issued by the Office for Budget Responsibility alongside the Budget. It suggested the five-year yield would break through 4% in 2027 before rising to 4.4% only in the second half of 2029.

Tom Bill, head of residential research at the agency, says: “Three weeks after the Budget, the government must still be watching the reaction of financial markets very attentively. Last week, money markets were pricing in a bank rate of between 4% and 4.25% in December 2025, which compared to an expectation of less than 3.5% just two months ago, as the chart shows.

“None of this is good news for the mortgage market and lenders have been edging rates higher in recent days. It will take a few more months before the full impact is felt in the housing market, which has recently seen strong levels of activity following rate declines in late summer and early autumn.”

The agency says it expects growing downwards pressure on prices and transaction volumes as the effect of higher rates takes its toll.

Meanwhile, prime residential markets, where equity and cash play more significant roles, face uncertainties too. 

Knight Frank warns that speculation over foreign investors has had negative consequences for the country’s finances. 

“If you wished to assert there was a £22 billion black hole in the UK economy, it has got £140.3 million bigger since March thanks to lost stamp duty revenue for property transactions above £5 million. Former Chancellor Jeremy Hunt first raised the prospect of abolishing the non dom regime in his spring Budget and there has been heightened nervousness around the taxation of wealth and property ever since” says Bill.

The agency estimates a shortfall of 107 deals between £5 million and £10 million and 35 transactions above £10 million have failed to happen, leading to the theoretical loss in stamp duty revenue of just over £140 million. A total of £11.6 billion in stamp duty was collected in the 2023/24 financial year.

Bill concludes: “For a government worried about financial black holes, it will need to keep watching foreign investors and bond traders closely to ensure its revenue-raising plans are not thwarted.”