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Sharp reduction in SWAP rates as market reacts to inflation data

Journalist: Justin Moy, Contributing Editor

ended 20. December 2023

2- and 5-year SWAP rates have reacted strongly to this morning's inflation data, falling by over 0.2% over the past few hours alone (see table, bottom). With inflation now sub-4%, brokers have said that sub-4% mortgage rates are also now imminent and that the rate war is set to intensify.

According to Justin Moy, Managing Director at Chelmsford-based broker, EHF Mortgages: "Wednesday's inflation data took the markets a little by surprise and SWAP rates have fallen sharply to reflect improved confidence in a base rate cut coming sooner than expected. The clock is now ticking on the emergence of a sub-4% mortgage rate. With lenders looking for a quick start to 2024, the mortgage price war could be bitter in January."

Ben Tadd, Director at Chippenham-based broker, Lucra Mortgages, agreed with Moy: “With inflation now south of 4% and edging ever closer to the target of 2%, SWAP rates have reacted very positively this morning. Off the back of  this, I wouldn't be surprised if a new sub-4% fixed mortgage is released before 2023 is done and dusted. If not, the way things are heading, we could well see a plethora of lenders with product rates starting with a 3 in early January as they look to build their lending pipelines for 2024.”

Jack Tutton, Director at SJ Mortgages, also expects mortgage rates to start with a 3 in the near future: “The significant reductions in SWAP rates that we've seen this morning have gone further than I thought, but then inflation also fell more than many predicted. This will spread more Christmas cheer to mortgage holders whose deals are coming to an end soon and people who are looking to get on the property ladder next year. The question is, which lender is going to be the first to gift the present of a mortgage product beginning with a 3?”

Simon Bridgland, Director at Canterbury-based broker, Release Freedom, hazarded a guess: “Who will come out swinging first? My money is on HSBC, then Halifax, then Nationwide, and perhaps Virgin. One thing for sure is that Christmas has not looked this rosey in a while. I think mortgagors and brokers should all be raising a glass to a much more palatable New Year for interest rates.”

Darryl Dhoffer, Director at Bedford-based broker, The Mortgage Expert added: "Mortgage rates have been flirting with the sub-4% barrier like something out of a Mills & Boon novel. We're not quite there yet but following the fairly big reductions in SWAP rates seen today, brace for an announcement from a lender very soon — if not before Christmas then very early in the New Year."

Ken James, Director at London-based broker, Contractor Mortgage Services, commented: “Today's inflation data and the impact on SWAP rates may be the tipping point we have been waiting for, with lenders starting to offer rates sub-4%. This certainly would be a great start to the 2024."

Chris Sykes, Technical Director and Senior Mortgage Adviser at Private Finance, added: “The drop in inflation today was larger than expected, which has likely been the driver of positive moves for SONIA swaps as markets opened. Recently, the Bank of England has been carefully managing our expectations for the base rate over the next year. Today's inflation figures will help support a rethink around these projections. A fall in average mortgage rates, and particularly long-term rates, which in some cases could start to enter the high 3%s, will help restore confidence in the purchase market.”

Neezam Romjon, Co-Founder at Rebus Financial Services, concluded: “Lenders are feeling the pressure to lend given the drop in mortgage approvals this year. With this sharp reduction in SWAP rates, lenders should be able to offer lower interest rates, which will be welcome news for borrowers around the UK and help boost the property market.”

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12 responses from the Newspage community

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Editor
Justin MoyVerified
Managing Director at EHF Mortgages
Wednesday's inflation data took the markets a little by surprise and SWAP rates have fallen sharply to reflect improved confidence in a base rate cut coming sooner than expected. The clock is now ticking on the emergence of a sub-4% mortgage rate. With mortgage lenders looking for a quick start to 2024, the mortgage price war could be bitter in January.
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Editor
Jack TuttonVerified
Director at SJ Mortgages
The significant reductions in SWAP rates that we've seen this morning have gone further than I thought, but then inflation also fell more than many predicted. This will spread more Christmas cheer to mortgage holders whose deals are coming to an end soon and people who are looking to get on the property ladder next year. Hopefully, lenders should be looking to pass these reductions onto their mortgage products as soon as possible, but I think they will want to see greater stability at this level before they do. The question is, which lender is going to be the first to gift the present of a mortgage product beginning with a 3?
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Editor
Simon BridglandVerified
Director at Charwin Private Clients
Ding Ding! Who will come out swinging first? My money is on HSBC, then Halifax, then Nationwide, and perhaps Virgin. One thing for sure is that Christmas has not looked this rosey in a while. I think mortgagors and brokers should all be raising a glass to a much more palatable New Year for interest rates.
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Editor
Ken JamesVerified
Director at Contractor Mortgage Services
Today's inflation data and the impact on SWAP rates may be the tipping point we have been waiting for, with lenders starting to offer rates sub-4%. This certainly would be a great start to the 2024. We could also see more 2-year fixed rates being selected as clients soak up the feel good vibes hoping that this will continue and deals will be lower at the end of their fixed periods. Let’s keep fingers crossed that this trend continues and that we don’t all of a sudden have hikes upwards throwing us all of track.
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Editor
Darryl DhofferVerified
Founder at The Mortgage Geezer
Mortgage rates have been flirting with the sub-4% barrier like something out of a Mills & Boon novel. We're not quite there yet but following the fairly big reductions in SWAP rates seen today, brace for a announcement from a lender very soon, if not before Christmas then very early in the New Year.
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Elliott CulleyVerified
Director at Switch Mortgage Finance
Swap rates were expected to reactive positively to the better than expected inflation data. This has further fueled the likelihood of early base rate cuts next year. This is a further shot in the arm for the housing market and it's likely we will see increased activity next year. I wouldn't expect all mortgage lenders to reduce rates this week. Most will likely target starting 2024 off with a bang.
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Chris Sykes0
Technical Director and Senior Mortgage Adviser at Private Finance
The drop in Inflation today was larger than expected, which has likely been the driver of positive moves for SONIA swaps as markets opened today. Recently, the Bank of England has been carefully managing our expectations for the base rate over the next year. Today's inflation figures will help support a rethink around these projections. One of the key variables impacting the direction of the base rate was the government reaching their 2% target and it looks like this could be sooner than expected amid a drop in the price of petrol and food prices. Reflecting the fall in SWAP rates, this will help instill confidence in lenders for the New Year to offer mortgage rate reductions. A fall in average mortgage rates and particularly long term rates, which in some cases could start to enter the high 3%s, will help restore confidence in the purchase market.
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Scott Taylor-Barr0
Principal Adviser at Barnsdale Financial Management
A sub-4% rate will certainly grab some headlines for the lender that chooses to launch first, whether that translates into business for them at this time of year is questionable. Whilst not the PR coup of being the first with a drop below 4%, the lenders that can maintain rates at that level in January will be the ones that see the real benefits in terms of business volume. That would make for a very happy New Year!
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Steven Hargreaves0
Mortgage and Protection Adviser at The Mortgage Co
Superb news, and very welcome. It's unlikely that all lenders will reduce rates in the next week or so, as the Christmas mortgage market tends to be quite slow, and they will most likely wait until early January for maximum impact. Hopefully, we will see rates nearer 3% in the first quarter of 2024, which will give existing borrowers with rates coming to an end, some relief and will encourage first-time-buyers to get off the couch in January and get the slumbering housing market moving again.
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Ben TaddVerified
Director at Lucra Mortgages
With inflation now south of 4% and edging ever closer to the target of 2%, SWAP rates have reacted very positively this morning. Off the back of this, I wouldn't be surprised if a new sub-4% fixed mortgage is released before 2023 is done and dusted. If not, the way things are heading, we could well see a plethora of lenders with product rates starting with a 3 in early January as they look to build their lending pipelines for 2024.
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Neezam Romjon0
Co-Founder at Rebus Financial Services
Lenders are feeling the pressure to lend given the drop in mortgage approvals this year. With this sharp reduction in SWAP rates, lenders should be able to offer lower interest rates, which will be welcome news for borrowers around the UK and help boost the property market. One thing we do need to watch out for is sticky Inflation. If inflation remains stubborn, or worse, increases again, we might not see rates below 4% quite as soon as hoped.
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Rob Gill0
Managing Director at Altura Mortgage Finance
The trend is very much the borrower's friend where mortgage rates are concerned at the moment. With Christmas fast approaching we are starting to advise clients there's no huge rush to secure mortgage rates now as there's every chance lenders will launch January sale-style rate cuts in the New Year.