SONIA swaps skyrocket
SONIA swaps are back on the up. What's causing the rise and, if it continues, do you expect recent rate reductions to stop or even go into reverse? As ever, what's your advice to borrowers?
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Swaps are climbing for three reasons that reinforce each other. UK political risk has returned after Labour's local election losses and the calls for Starmer to go, pushing 10-year gilts above 5.1%, their highest since 2008. Brent is back above $105 as the Iran situation drags on, feeding UK inflation through fuel and transport. The MPC has turned hawkish, with markets pricing nearly three rate hikes by year-end rather than the cuts we were discussing in February.
If swaps keep rising at this pace, recent fixed-rate cuts will stall within days and reverse within weeks. Lenders cannot absorb 20 to 30 basis points of funding cost without repricing, and the sub-4% deals have already been pulled.
Advice to borrowers is simple. If you are remortgaging in the next six months, secure a rate now. If pricing improves before you complete, we switch you to the better deal. If it gets worse, you are protected. The next test is the CPI print on 21 May. If it comes in high, the next move is a hike.
If swaps keep rising at this pace, recent fixed-rate cuts will stall within days and reverse within weeks. Lenders cannot absorb 20 to 30 basis points of funding cost without repricing, and the sub-4% deals have already been pulled.
Advice to borrowers is simple. If you are remortgaging in the next six months, secure a rate now. If pricing improves before you complete, we switch you to the better deal. If it gets worse, you are protected. The next test is the CPI print on 21 May. If it comes in high, the next move is a hike.
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Rising swap rates are often a sign that lenders are starting to eye higher mortgage pricing. The markets seem nervous about stubborn inflation, government turmoil, and if swaps keep climbing, we could quickly see recent rate reductions disappear. For borrowers, holding out for dramatically cheaper deals feels like a gamble right now; locking in some certainty may be the safer call.
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Whilst the never-ending Middle East conflict continues to cast a dark shadow over the UK economy, the political unrest within the government just adds another layer of uneasiness in the market, and that takes the cost of finance just that bit higher. The lack of clarity about the future makes those in the market rightly nervous, and ultimately, we, as the borrowing public, bear the ultimate sacrifice in our pockets. Time to get your skates on and get the new mortgage booked before another wave of rate increases ultimately hits the fan.
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Escalating tensions between the US and Iran, and the continued impact of the conflict on oil prices, are fuelling inflation fears, and when markets are worried about inflation, swap rates rise. If swaps continue to rise, the rate reductions of late could soon go into reverse. If you're hanging on for a better rate, you have been warned.
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Markets are reacting to sticky inflation and uncertainty around global trade and fiscal policy. SONIA swaps move on future expectations, not just where the Bank of England base rate is today, so even small shifts in outlook can push pricing higher quickly.
If swaps continue rising, lenders are likely to slow rate reductions and some may reprice upwards again, especially on fixed rates. We’ve already seen how quickly pricing can change when markets become uncertain.
For borrowers, timing the market perfectly is difficult. The focus should be on securing a deal that works for your budget and long term plans rather than waiting for the “perfect” rate. We are still seeing strong options available, but hesitation can sometimes cost more if rates move against you.
If swaps continue rising, lenders are likely to slow rate reductions and some may reprice upwards again, especially on fixed rates. We’ve already seen how quickly pricing can change when markets become uncertain.
For borrowers, timing the market perfectly is difficult. The focus should be on securing a deal that works for your budget and long term plans rather than waiting for the “perfect” rate. We are still seeing strong options available, but hesitation can sometimes cost more if rates move against you.