Daily Telegraph swaps rates

It’s too early to call whether swap rates are coming down. The real test will be when core inflation figures are published next week. Until then, it is pointless to speculate. But the recent movement in swaps might mean that the market is speculating that the Bank of England MIGHT need a slower approach.

There has been a distinct whiff of panic around the surge in swap rates recently. Panic puts a premium on prices, it can't last forever though, so it always seemed likely prices would start to settle sooner or later. Hopefully, this will translate into easing mortgage rates before too long.

Graphs depicting the US inflation curve make for optimistic viewing with the rest of the world often following their trends.

But the UK has some very different challenges to the rest of the world and there will likely be a need for greater government and fiscal policy intervention to really get a grip on inflation in the UK.

I think current reduction in swap rates is a result of the market correcting itself as it overpriced in response to the latest inflation figures announced last month. And whilst this may offer some short term certainty to the market, it will not last long if inflation remains around 8% at the next announcment.

Whilst it is good to see that swap rates have started to fall - at least in the short term - don't expect that to translate into an immediate reduction in Fixed rate mortgages as a number of lenders have announced further increases today.

Generally speaking, the advice remains the same for those who have a bit of time before their deal ends. Secure something as soon as possible and then continually review things as most lenders will allow you to switch products before completion.

The decline in UK GDP is evidence the economic cold-turkey is working and this data could ultimately prove a turning point for mortgage rates. UK swap rates, which have a direct bearing on mortgages, have started falling since the data was released. Of course, one set of economic news in isolation isn't conclusive, but it's a sign predictions of the Bank of England base rate hitting 6-7% may be premature.

Core inflation is the key, until we start to see this decrease, the markets are going to be temperamental. The key to better mortgage rates are the swap rates so if we do see them dropping over a sustained period of time then borrowers are going to benefit from lower rates. However, with the majority of lenders increasing their rates in the last week again I am not expecting good news on inflation next week.

Lenders are still trying to be very competitive so I suspect that they will be quick and responsive to any reductions in the swap rates however I feel that they would need to see a downward trend rather than a single incident before we see any real changes.

This change in swap rates is a positive sign and shows an adjusted expectation that over a 2 or 5 year period, base rate will be lower than previously thought. I suspect swap rates falling is to do with the GDP contraction in May, as this will in turn reduce the speed that costs are rising, meaning there is a slight possibility that base rate can come down sooner. People have already stopped spending — just take a look around you when you next visit a restaurant. Rents and mortgages are up and confidence is down. Inflation will fall off a cliff sooner or later. I believe this could be the peak of borrowing costs, but we won't know for sure until we see the inflation data on 19th July.

We need a sustained period of falling swap rates before we can breathe a huge sigh of relief and have normality and confidence return to the market. The swaps have fallen due to the announcement that US annual inflation slowed to 3% last month, according to the latest Consumer Price Index released on Wednesday by the Bureau of Labor Statistics.

Ultimately we need core inflation to decrease and the Bank of England to start the process of reducing the base rate.

If swap rates fall, lenders can buy money cheaper, then they can (if they want) pass the savings on to their new clients. We could see some rate lowering again.

I see the falling swap rates as a "why has it taken so long for the market to react" moment. I'm growing ever more worried that the UK mortgage industry needs to rethink and go back to a more retail-based market, rather than the wholesale one.