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"Mortgage price war is over" as rising swap rates could end euphoria of base rate hold

Journalist: Newspage News Desk

ended 02. October 2023

This morning, in its September house price index, the Nationwide announced that “investors have marked down their expectations for the future path of Bank Rate in recent months amid signs that underlying inflation pressures in the UK economy are finally easing, and with labour market conditions softening. This in turn has put downward pressure on longer term interest rates which underpin fixed rate mortgage pricing. If sustained, this will ease some of the pressure on those remortgaging or looking to buy a home."

However, due to higher oil prices filtering through, many city traders are now betting on another base rate increase in November. As such, 2- and 5-year gilt yields have risen over twenty basis points in recent days and swaps have edged up in response. As a result, Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial, has claimed “the mortgage price war is over.”

Iain Swatton, director at Exemplar Financial Services, agreed: "The recent surge in oil prices has spurred predictions of a base rate increase in November and it's likely to signal the end of rate cuts for the near future. Fixed rates will probably start climbing and so consumers should explore attractive deals now before potential mortgage rate hikes."

His views were shared by Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages: “The hike in swap rates towards the tail end of last week is concerning given the recent reductions, which have led to lenders repricing downwards. This reinforces the notion that the euphoria of the hold decision by the Bank of England may be short-lived.”

Much the same verdict was reached by Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “With the oil price rising, it's looking like the mortgage rate cuts in September could quickly be reversed. If inflation ticks up, then it's plausible we get a further 0.25% base rate rise in November. Whilst gilts and swaps aren't directly correlated to the Bank of England base rate, they are a great indicator of sentiment. Anyone needing to remortgage may not want to hang about because we've no idea how long these rates will be around.”

Katy Eatenton, mortgage and protection specialist at St. Albans-based Lifetime Wealth Management, also suggested lenders could be more cautious in October, but that the one factor acting in borrowers' favour is lenders fighting for market share: “The excitement over sub-5% mortgage rates may be shortlived if swap rates continue to edge up, as they did at the end of last week. We may start to see more cautious repricing until we receive the inflation figures in October and the Monetary Policy Committee meets again in November. However, the saving grace is that lenders are still desperate to do business and get as many applications in while they can still service the demand.”

Meanwhile, Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages, urged borrowers to be vigilant: “For consumers, it might be wise to lock into existing deals before further hikes materialise, capitalising on current rates amid looming uncertainty. The evolving economic landscape calls for vigilance and timely action to navigate potential financial shifts.”

But Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages, urged borrowers not to panic: “Yes, the rise in swap rates will likely slow the rate cuts we have seen recently, as lenders take time to see how deep-rooted the current increases are. However, I do not think there is a need to panic if the base rate goes up again, as any increase in November would simply replace the expected rise from September that did not happen. Don't panic, Mr Mainwaring.”

For Graham Cox, founder of the Bristol-based broker, Self Employed Mortgage Hub, rising swap rates were like a scene from Jaws: “Just when it looked safe to dive back in the mortgage waters, along comes a 20ft long shark to put the fright back into the markets."

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13 responses from the Newspage community

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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
The excitement over sub-5% mortgage rates may be shortlived if SWAP rates continue to edge up, as they did at the end of last week. We may start to see more cautious repricing until we receive the inflation figures in October and the Monetary Policy Committee meets again in November. However, the saving grace is that lenders are still desperate to do business and get as many applications in while they can still service the demand.
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Iain Swatton
Director at Exemplar Financial Services
The recent surge in oil prices has spurred predictions of a base rate increase in November and it's likely to signal the end of rate cuts for the near future. Fixed rates will probably start climbing and so consumers should explore attractive deals now before potential mortgage rate hikes.
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Riz Malik
Independent Financial Adviser at R3 Wealth
The hike in swap rates towards the tail end of last week is concerning given the recent reductions, which have led to lenders repricing downwards. This reinforces the notion that the euphoria of the hold decision by the Bank of England may be short-lived.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The mortgage price war is over. We also must remember that gilt and swap rates aren’t based purely on the central bank base rate, but confidence in the government, which we all know can turn on a dime. Until the new year, there may be no new reductions but when they start near the spring of next year there will be a money avalanche and housing costs will be in free fall.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Yes, the rise in swap rates will likely slow the rate cuts we have seen recently, as lenders take time to see how deep-rooted the current increases are. However, I do not think there is a need to panic if the base rate goes up again, as any increase in November would simply replace the expected rise from September that did not happen. Don't panic, Mr Mainwaring.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
With the prospect of inflation increasing again, we will likely see further base rate increases in November and possibly beyond. The markets are now pricing this in and there will likely be a knock-on effect on mortgage borrowers.
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Justin Moy
Managing Director at EHF Mortgages
Rising swap rates was an inevitable reaction to the rise in oil prices, and inflation will only increase if this is maintained for much longer. There are some good mortgage deals currently available, and as always seek help from your mortgage broker who will have advance notice of changes and will be able to give you the expert guidance you will need. By the time you read it in the paper, it may be too late.
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Darryl Dhoffer
Founder at The Mortgage Geezer
Higher oil prices reaching $100 a barrel recently may send inflation figures sideways or, dare I say, upwards. SWAP figures have reacted with marginal increases. This may take time to filter through, however, and with the Monetary Policy Committee meeting again in November to announce their base rate decison, all eyes will yet again be on the next set of inflation figures. In the meantime, expect to see jockeying for position by the big six lenders, with possibly minor cuts still to be had in coming weeks. However, we all know how quickly things can turn.
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Simon Bridgland
Director at Charwin Private Clients
It’s quite likely that the mortgage cuts of the past fews weeks are over, although we may see a little wriggling this week to take top spot. If we see guilt yields and swaps increasing then chances are fixed money will follow. It all depends on how sustained the increases are. If I were a budding mortgage hunter, I’d be jumping on a deal now.
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Jamie Lennox
Director at Dimora Mortgages
With surging oil prices, more traders are expecting a base rate hike in November. This speculation has already pushed 2 and 5-year gilt yields up by over twenty basis points. Given this climate, it seems the era of rate cuts might be pausing. As these developments signal potential future rate increases, fixed rates may follow the uptrend in the coming weeks. For consumers, it might be wise to lock into existing deals before further hikes materialise, capitalising on current rates amid looming uncertainty. The evolving economic landscape calls for vigilance and timely action to navigate potential financial shifts.
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Graham Cox
Director at Bridging Hub
Just when it looked safe to dive back in the mortgage waters, along comes a 20ft long shark to put the fright back into the markets. Hopefully these higher oil prices are only temporary and don't affect inflation, or mortgage costs, too much.
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Gary Boakes
Director at Verve Financial
The rate reductions were fun while they lasted. The increase in swap rates will likely slow the rate reductions for the next few weeks until we see the new inflation data and then the response from the Monetary Policy Committee in early November.
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Amit Patel
Adviser at Trinity Finance
It was good whilst it lasted. Saudi Arabia and Russia are two of the biggest producers of oil and the production cuts announced earlier in the year have finally pushed the price of a barrel to $100. This will have a ripple effect in the supply chain and, as prices rise, the Bank of England's job will become much easier to increase the base rate by 0.25%.