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2-year swap lowest since March 2023: "Fears of a US recession are proving a real fillip to UK borrowers"

ended 10. September 2024

As of this morning, the 2-year Sonia swap was 3.91%, the lowest since March 2023 and lower than the 4.01% it dropped to at the start of the year. Newspage asked lenders and brokers why swaps are falling, how much further they could go and what could influence the trajectory of swaps this month.

13 responses from the Newspage community

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Kim McGinley
Director & Specialist Broker at VIBE Finance
SWAP rates being at their lowest level since March 2023 is a huge step forwards and demonstrates market confidence. The Bank of England reduction in August is a reflection of this and, with the election now firmly behind us, we can hopefully move towards a more stable market. However, the Autumn Budget is looming and if there's anything we've learnt over the past four years, it's not to get complacent. Borrowers should make the most of rates whilst they are there. As a broker, receiving numerous notifications of rate reductions daily is extremely welcome. It's important to remember that rates are already starting from the late 2's in the specialist market on buy-to-let products, albeit with high product fees, but interestingly the variance between high rate/low fees is actually minimal in certain instances. This highlights the real importance of brokers calculating true costs and providing borrowers with options to help them make informed decisions.
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Peter Stimson
Head of Product at MPowered Mortgages
Fears of a US recession are proving a real fillip to UK borrowers. The 2-year swap, which 2-year fixed rate mortgages are priced off, is now at its lowest level for 18 months and is even lower than it was at the start of the year when lenders were cutting across the board. 5-year swaps are also falling. Weaker than expected US jobs data at the beginning of month has meant markets see a 0.25% cut by the US Federal Reserve as a nailed-on certainty. ING even believes there’s a 25%-30% chance of a 0.5% cut by US policymakers. If the Fed does reduce by 50 basis points, and next week’s UK inflation data is better than expected, a rate cut by Threadneedle Street the day after the Fed is much more likely. If that happens, swaps could continue to fall. Next week is shaping up to be a very big week for UK borrowers.
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Darryl Dhoffer
Founder at The Mortgage Geezer
As swaps fall, UK borrowers are striking gold. Lenders use these rates to set mortgage rates, so a falling swap is like a treasure chest opening up. This means borrowers can potentially snag cheaper mortgage deals, a real windfall in today's market. If the current trend in swap rates continues, lenders may be able to offer more competitive fixed-rate deals. However lenders' profit margins will take precedence before any reductions follow. Let's beware also, this calm before the storm could be short-lived. If inflation rears its ugly head again, the Bank of England might have to raise interest rates, and that could send swap rates soaring. A rough economic patch could also force the Bank's hand. And let's not forget the unexpected twists and turns of global events, which can rapidly impact market sentiment.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
The sub-4% 2-year fixed rate for a standard mortgage has been missing for too long and will be welcomed like an oasis in the desert. The latest movements in Swap rates indicate borrowers' thirst for an affordable 2-year fixed rate may soon be quenched.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Mortgage rates continue to fall as the expectation in the markets is that the rate cutting cycle will continue. However, we have a Budget coming up so let’s hope that the Chancellor has done her homework and got someone to double check it otherwise all the good work could be undone very quickly. We have been there before and it wasn’t pretty.
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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
UK homeowners may soon find themselves in a borrowing bonanza as swap rates continue to fall. With the UK mortgage market on the brink of a potential revolution, the swap market crystal ball reveals a tantalising glimpse of renewed mortgage affordability.

The current downward trajectory of swaps can be attributed to signs of improvement in the UK’s economy, combined with inflation finally coming under control. This has fuelled expectations of an imminent interest rate cut, with financial markets suggesting that the base rate could fall to 4.75% by year-end and potentially 3% in 2025. This optimistic outlook is reflected in the swap rates, which serve as a barometer for future interest rate expectations.

However, while the current trend is promising, several factors could reverse this downward trajectory, such as an unexpected surge in inflation or continued elevated wage growth, which could prompt the BoE to maintain its hawkish stance for longer than expected.
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Ben Perks
Managing Director at Orchard Financial Advisers
The 2-year products are the ones that people seem most interested in lately, so to see 2-year money becoming more affordable is extremely encouraging. There is still a little way to go, but if we can see a 2-year product beginning with a 3 available to borrowers, we are in a great place. Better than we could have expected at the start of the year.
The fact that we’re even contemplating this is exciting.
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Craig Fish
Director at Lodestone Mortgages
Market confidence is booming, and as we see lender rates continue to fall on the back of SWAP rates reducing, things are only going to get better. To see 2-year rates in particular dropping is very good news for borrowers who currently prefer the flexibility of shorter term options. Fingers crossed that the Autumn Budget is well thought out and considered, otherwise this downward trend could quickly reverse.
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Justin Moy
Managing Director at EHF Mortgages
Falling Sonia swap rates are reflective of an improved economy and inflation is under some control, along with the expectation that base rate cuts will come again soon. Lenders have been able to pass on these savings to borrowers, whilst property activity has certainly improved, but most have one eye on the first Labour Budget in October, and many fear a tax raid will stifle the market.
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Jed Newton
Director at Trinity Financial
While it is fantastic news that swap rates are falling, the bad news for borrowers is that the rate cuts are not being passed on quickly enough. We think mortgages should be cheaper priced given the significant funding cost reductions.

Lenders are making smaller price cuts week after week when they could be making larger reductions in one go. Recently it looked as though swap rates had flattened and mortgage funding costs had stabilised, but there have been more significant reductions.

Lenders are not as quick to lower their rates as they are to increase them. Even so, I think we may well see sub-4% two-year fixes over the coming weeks and five-year fixes closer to 3.5%.
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Daniel Hobbs
Managing Director at New Leaf Distribution
2-year Sonia swaps have plummeted to their lowest point since March 2023, likely due to easing inflation concerns and a softer economic outlook. This has prompted lenders to slash mortgage rates significantly, offering potential savings for borrowers. However, interest rates can be volatile, so it's advisable to act quickly.
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Elliott Culley
Director at Switch Mortgage Finance
The 2 year Sonia swap continues to trend downwards, which will further incentivise lenders to reduce their mortgage rates. The downward trend has been more controlled and measured in comparison to the start of the year, where lenders were far more gung-ho with their rate reductions as they tried to obtain as much business as possible. Most were left red-faced when they then had to increase rates again a month later. The current cautious approach is a hangover from earlier in the year and lenders will have some concern over the Autumn budget and the risk of inflation increasing in the winter months. Provided there are no unexpected turns, the rates we are seeing today should be here to stay for a little while yet and hopefully may even get better.
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Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
This is excellent news, as it likely reflects expectations that inflation is expected to continue to ease even if there is a slight blip, which could mean further interest rate cuts by the Bank of England sooner than expected. It will be great timing for borrowers whose deals are ending soon and those looking to move.