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SONIA swap rates trending downward could "see even deeper reductions in fixed-rate pricing"

Journalist: Riz Malik

ended 05. February 2025

SONIA swap rates extended their downward momentum across all maturities on the eve of the Bank of England’s base rate announcement, with shifts ranging from a 2.9 basis-point drop in the 1-year tenor to an 8.1 basis-point decline for the 30-year. The 5-year was down 7.1 basis points. The broad-based dip suggests markets may be pricing in a more dovish policy stance when the Bank of England delivers its decision tomorrow. Newspage asked brokers what this could mean for mortgage pricing and how quickly lenders could react. Their views are below.

SOURCE: CHATHAM FINANCIAL

10 responses from the Newspage community

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Riz MalikVerified
Independent Financial Adviser at R3 Wealth
The Bank of England is expected to cut interest rates by 25 basis points, a move that couldn’t come sooner. With SONIA swap rates continuing to decline, we may see even deeper reductions in fixed-rate pricing, which will be welcome news for households looking to buy or remortgage. Some high street lenders have already made significant rate cuts, and expectations are that this trend will continue.
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Emma JonesVerified
Managing Director at Whenthebanksaysno.co.uk
The downward spiral in swaps will likely translate into better mortgage pricing for borrowers in the days and weeks ahead. The minutes accompanying tomorrow's Bank of England rate decision will also be crucial and could set the tone among lenders. After the false start that was January, February is looking considerably more positive.
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Adam StilesVerified
Managing Director at Helix Financial Partners
As with any kind of downward rate movement, you have to approach it with a degree of cautious optimism. The white knuckle ride of recent times will always mean we expect the unexpected but naturally when SWAPs drop, we hope that lender fixed rates will follow. If the Old Lady of Threadneedle Street does reduce rates then it's hopeful that SWAPs will continue on a downward trend leading to a reduction in mortgage fixed rates.
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Ben PerksVerified
Managing Director at Orchard Financial Advisers
Next week could be a brilliant week for mortgage rates. With swap rates trickling downward and the tantalising prospect of a base rate cut tomorrow we could see lenders reducing rates with tenacity. This is a much-needed glimmer of hope for the mortgage market. All eyes are now on Andrew Bailey and his team to help borrowers and do the right thing: cut cut cut.
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Jack TuttonVerified
Director at SJ Mortgages
All signs are pointing to many more base rate cuts this year or more signifcant cuts than the normal 0.25%. Whilst I think we will see a 0.25% cut tomorrow, swap rates have been trending down for a little while now which could mean more cuts are coming at a quicker rate than previously thought. Should this be the case, this will be very welcome by all those coming off historically low rates that were available during the pandemic, providing lenders pass these reductions on in good time.
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Aaron StruttVerified
Product and Communications Director at Trinity Financial
SWAP rates have been edging down for a while and some of the big lenders have improved their pricing in recent days. There is a fair chance the base rate is coming down so we may well have slightly cheaper fixes over the next week or so. Some five-year fixes are edging closer to 4%.
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Gabriel McKeownVerified
Political & Economics Writer at Sad Rabbit - Substack Newsletter
With markets increasingly betting on a dovish turn from the Bank of England, swap rates have plunged across all maturities on the eve of this week’s announcement. This broad repricing reflects a changing dynamic in the UK economy, as while inflation has yet to retreat fully, there are signs of easing pressures in energy and food prices. However, with economic growth remaining anaemic and the once-tight labour market beginning to show cracks, this perfect storm has raised expectations that the Bank will pivot towards a more accommodative stance. The most notable shifts have been seen at the long end of the curve, resulting from diminished inflation expectations and greater confidence in monetary stability ahead. However, external pressures, such as the escalating trade war and geopolitical instability, could complicate any effort to ease monetary policy. Consequently, a miscalculation could spark renewed volatility in gilts, a sharp repricing of risk assets, and rising mortgage rates.
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Elliott CulleyVerified
Director at Switch Mortgage Finance
Swap rates are reducing in response to a likely base rate reductions tomorrow. This allows mortgage lenders to get ahead of the curve and reduce fixed rates in anticipation. Expect more reductions as the weeks progress.
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Kylie-Ann MartinVerified
Director at KAG Financial
Looking at the rate reductions we have already seen these week, we are all keeping our fingers crossed for the base rate to drop. But seeing swap rates come down is key, as we have seen previous base rate reductions and swaps not really move. So knowing swaps are gradually reducing is great news for borrowers. I believe the base rate news pending this week will have already been taken into account for pricing current fixed rates, but hopefully swaps will continue to reduce, allowing us to access more competitive fixed rates for our clients.
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Iain SwattonVerified
Director at Exemplar Financial Services
Swap rates trending downwards today signals growing confidence that the Bank of England will cut the base rate tomorrow. Some lenders have already responded by repricing their mortgage products downwards, and I would expect more to follow. This is welcome news for homeowners—whether purchasing or remortgaging—after weeks of uncertainty. If the Bank of England delivers a rate cut, it will provide much-needed relief and a boost to market confidence.