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2-year SWAP rate drops below 5%

ended 22. September 2023

Following Thursday's decision by the Bank of England to leave the base rate unchanged and Wednesday's better than expected inflation data, this morning the 2-year SWAP rate dropped below 5% (see screengrab, bottom). Brokers welcomed the news across the board.

According to Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages: “This is a welcome market reaction to the Bank of England rate announcement on Thursday. This should make lenders and borrowers alike salivate. We are still not out of the woods just yet, but this is another positive step in the right direction.”

Moy's views were share by Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “Off the back of yesterday's Bank of England base rate pause and Wednesday's inflation print, which showed better-than-expected figures across the board, gilt yields and, as a consequence, swap rates have fallen. It's the first time the two-year swap has been below 5% for months. Given that swap rates are one of the main tools for lenders pricing fixed-rate mortgages, it's nailed on we'll start to see 2-year fixed-rate mortgages reducing over the next few weeks if the economic status quo is maintained. It'll be some time before 2-year fixes drop below 5%. However, it's the best metric we have that more rate reductions are on their way and not a moment too soon.”

Meanwhile, Peter Stamford, director of Alston-based Moor Mortgages, said this could help reignite the property market: “It looks like the SWAP market is reacting to yesterday's Base Rate decision. This is a really positive signal for homeowners, as it will allow banks to reduce rates and ease the pain of movers and remortgagers alike. I have everything crossed that this could reignite the stagnant property market. Here's to more good news as we finish up 2023.”

Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco, added: "Two-year SWAPs falling below 5% is a watershed moment and, taken together with 5-year money falling below 4.5%, this should give lenders plenty of room for manoeuvre when it comes to product pricing. I suspect this will be the catalyst for a new set of cheaper products that stimulate both the purchase and remortgage market alike."

Darryl Dhoffer, founder of Bedford-based The Mortgage Expert, was over the moon: "The Bank of England pulled the handbrake on Base Rate rises and SWAPS reacted with the 2yr fixed below 5%. This is the best news we have heard in months. Surely it is a matter of days before lenders react and launch more competitive 2yr fixed rate deals, and dare I say it in the coming weeks the big 6 lenders come out with 2yr deals beginning with a 4. As Delia Smith once said "Let's be having you"."

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12 responses from the Newspage community

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Darryl Dhoffer
Founder at The Mortgage Geezer
The Bank of England pulled the handbrake on Base Rate rises and SWAPS reacted with the 2yr fixed below 5%. This is the best news we have heard in months. Surely it is a matter of days before lenders react and launch more competitive 2yr fixed rate deals, and dare I say it in the coming weeks the big 6 lenders come out with 2yr deals beginning with a 4. As Delia Smith once said "Let's be having you".
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Graham Taylor
Managing Director at Hudson Rose
2-year swap rates falling below 5% is undoubtedly a good sign and comes off the back of the better-than-expected inflation figures, leading to a pause from the Bank increasing the Base Rate. With the market subdued, lenders are already starting to price quite aggressively, and we may start to see this competition increase as they are buoyed by the fall in their underlying cost of funding.
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Justin Moy
Managing Director at EHF Mortgages
This is a welcome market reaction to the Bank of England rate announcement on Thursday. This should make lenders and borrowers alike salivate. We are still not out of the woods just yet, but this is another positive step in the right direction.
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Andrew Montlake
Managing Director at Coreco
Two-year SWAPs falling below 5% is a watershed moment and, taken together with 5-year money falling below 4.5%, this should give lenders plenty of room for manoeuvre when it comes to product pricing. I suspect this will be the catalyst for a new set of cheaper products that stimulate both the purchase and remortgage market alike.
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Riz Malik
Independent Financial Adviser at R3 Wealth
There is potentially a window here between now and the next base rate meeting in November. If the data that feeds into the November meeting is not as favourable, rates may tick up further especially with rising energy prices. For those renewing in the next 6 months, it would be worth considering your options now to potentially capitalise on the hold.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
2 Year Sterling Overnight Index Average (SONIA) has plummeted to sub 5% over the last month, the addition of the Bank of England holding Base Rate, clearly indicating they think the economic data is heading the right way, and the mortgage rate war between the UKs biggest lenders, all mean things are looking much better for mortgage borrowers moving forwards.
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Peter Stamford
Mortgage Expert at Stamford Home Finance
It looks like the SWAP market is reacting to yesterday's Base Rate decision. This is a really positive signal for homeowners, as it will allow banks to reduce rates and ease the pain of movers and remortgagers alike. I have everything crossed that this could reignite the stagnant property market. Here's to more good news as we finish up 2023.
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Amit Patel
Adviser at Trinity Finance
Confidence is now back in the market and the sentiment unless something fundamentally changes the dynamics looks much more positive on the back of the inflation data released earlier in the week and the Bank of England opting to keep the base rate on hold. This is welcome news for borrowers who are due to come to the end of their fixed rates.
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Graham Cox
Director at Bridging Hub
Two-year swap rates have fallen about 0.7% in just the last month, showing how quickly the market has recovered from the poor inflation figures over the summer. With confidence returning, and mortgage rates being cut across the board, there's suddenly a spring in the step of the property market.
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Rob Gill
Managing Director at Altura Mortgage Finance
The environment for mortgage lenders is certainly improving with stability from the Bank of England combined with falling Swap rates allowing them to push on with rate cuts. The mortgage price war that was already underway looks set to intensify.
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Richard Campo
Founder at Rose Capital Partners
It's great to see money markets falling, but the champagne may still need to stay on ice for a while yet.
Mortgage funding is deliberately slow, due to a process called 'Tranching', which means lenders buy-in funds on a huge scale so they can price products for the coming weeks, exactly for this purpose in that they aren't subject to market fluctuations, which would make their (and any brokers life) unmanagable if mortgaeg pricing changed on a daily basis. Great when rates rise, but slow to unwind when rates fall.
I think we will see a slow reduction of Fixed rates as each lender 'buys in' new funds at the new lower rate over the coming weeks. This process could take weeks, or even months to play out fully. So I am still cautious about recommending any fixed rate currently as it is likely to be undercut in the coming weeks. Great news that rates are coming down, but it will be like playing Whack-A-Mole chasing rates as the market falls
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Steven Hargreaves
Mortgage and Protection Adviser at The Mortgage Co
It appears confidence is returning with the Swap Rates reducing and for the first time going under 5%.
The current 2-year Fixed rates seem expensive in comparison to the 3, 5 and 10-year offerings, hopefully, they can continue reducing and lenders will reflect the Swap rates in their 2-year fixed rates.
Many clients do not want to be tied in for 3 or 5 years, the 2-year deals provide flexibility and the ability to review their mortgage regularly.
It has been a good news week for the Bank of England stabilising the Base rate and fixed rates with many lenders this week reducing their products, and Swap Rates reducing is fantastic.