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Swaps on the rise: how long before lenders increase rates?

Journalist: Newsteam, Newsteam

ended 25. January 2024

With SONIA swaps, which affect mortgage pricing, on the rise, Newspage asked brokers what factors are contributing to this and what impact it could have on lender pricing. Their views are below.

14 responses from the Newspage community

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Stephen Perkins
Managing Director at Yellow Brick Mortgages
This latest swap rate data is the drawing pin to burst the market confidence balloon. Let’s hope this is just a blip, but at nearly a 0.5% increase on 5-year money this is concerning and we will likely see some imminent product withdrawals and rate increases.
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Darryl Dhoffer
Founder at The Mortgage Geezer
There is a strong demand for SONIA swaps from various market participants, including lenders, insurers, pension funds, and hedge funds, all looking to hedge their interest rate exposure. Recent demand, coupled with limited supply, is pushing up the cost of swaps. Geopolitical risks with the war in Ukraine, and the issues now in the Middle East, are adding to the risk premium in the UK markets. It's concerning that long-priced SWAPS have seen a spike. I would advise borrowers to act now to secure mortgage deals that are still relatively attractive, as these could disappear just as quick as a politician's promise after election day.
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Andrew Montlake
Managing Director at Coreco
The latest Swap rate movements show the capricious nature of the market and why it is important not to be carried away on a wave of optimism that mortgage rates will continue to fall dramatically. In this environment, it will be a case of two steps forward and one step back as mortgage lenders tread carefully between competition for market share and profit margins. We may well see lenders reprice upwards a touch, but this is a step back to go forward rather than a fundamental change in direction.
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Craig Fish
Director at Lodestone Mortgages
2024 will be the year of the bounce, and I suspect there are going to be several more before the year is out. This recent rise in SWAPS comes off the back of the inflation data, and is being further fuelled by tensions in the Middle East and the Red Sea. Further bumps this year will be caused by the Spring budget, and even more so by a potential change in government at the next election. This goes to show why it it so important to seek the advice of regulated professionals that monitor market conditions like this in order to put their clients in the best position. You should lock in a rate on the advice of your broker at the earliest opportunity otherwise you could lose out, and that could be costly.
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Hannah Bashford
Director at Model Financial Solutions
Rate rises and sweeping withdrawals are likely on the back of this. Lenders are sensitive to these changes so an increase of almost 0.5% on 5-year money over the past month may see them reaching for the eject button.
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Justin Moy
Managing Director at EHF Mortgages
I think this just shows how quickly mortgage rates can change for the worse, and lenders are inevitably going to react to this. This could have happened for all manner of problems, but I sense it’s about the potential for some inflationary issues around the world. The overall plan will stay the same, but the route will be bumpy.
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Rita Kohli
Managing Director at The Mortgage Stop
Its going to be turbulent for a while, as the economic outlook is patchy at best and global events will cause markets to move quickly. Lenders will react to this but hopefully they take a more pragmatic approach to adjusting prices than they did throughout much of 2023.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Investors are getting jittery about inflation again and demanding a higher return. Not great news for mortgage pricing but in the current market, lenders may continue downward pricing to pursue their mortgage lending ambitions after a dire 2023.
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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
This doesn't make for good reading and will more than likely result in lenders repricing. An increase of 0.5% on 5-year rates is substantial enough to cause a wobble in confidence.It also shows that we cannot get complacent with rates, and that things can change in the blink of an eye.
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Ben Perks
Managing Director at Orchard Financial Advisers
This demonstrates the fragility of interest rates at the moment, and that it is a volatile environment. A 0.5% spike in SWAP rates will leave little alternative for lenders, so increases are imminent. The markets show signs of being very up and down this year, so there will be bumps in the road but more reductions will come in due course. Brokers and borrowers alike should be preparing for product withdrawls and rate increases. Don't hang around, speak with each other and get suitable plans in place.
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Harps Garcha
Director at Brooklyns Financial
Swap rates have fluctuated a lot in the past few weeks, but they have risen by 0.50% in the last month. This is contrary to what mortgage lenders have been doing. This could mean that fixed rates will change soon, as they are based on SWAPs. The overall trend is downward, but with some volatility.
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Steven Morris
Advising Director at Advantage Financial Solutions
Having spoken to a few mortgage lender reps this week, I've been left with the impression that January mortgage pricing this year has been much like the current price of Christmas fragrance sets in your local chemists. Artifically cheap and left over from December. The December 2023 to January 2024 swap rate pricing certainly supports this: lenders have been lending out to customers from left over unused funds, which they acquired in December at a cheaper price than lenders could buy, just a month later, from the wholesale markets in January. Particularly if we look at 5-year swap rates, they are around 0.5% higher now than in December. The real question is, will lenders continue to battle it out for market share with reduced profit margins? Santander pricing upwards this week already, suggests perhaps not. Mortgage borrowers looking to fix, need to act and adopt the 'reserve and improve' strategy, because once they are gone, they're gone.
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Ross McMillan
Owner/Mortgage Advisor at Blue Fish Mortgage Solutions
Fingers crossed this is just yet another bump on the road towards an overall more stable mortgage market over the next few months but this unexpected market spike underlines that crystal balls are of no use in this environment and it's important that borrowers and advisers always reflect and act promptly on what are the facts and reality at any given time rather than speculation and fortune telling.
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Ying Tan
CEO at Habito
The rollercoaster journey of swap rates continues apace. Mortgage pricing is largely determined by these rates, so it's inevitable that we will see an impact on pricing. Watch out for withdrawals and some increased mortgage pricing. The sentiment around inflation has altered a little, but I see this only as a blip and not a long term change in the downwards trend. Buckle up.