Copy article

Swap rates edging down

ended 13. July 2023

Following news that both two and five year swap rates have edged down this morning, UK newswire, Newspage, asked brokers for their thoughts on what's causing this and if it will translate into lower rates. 

10 responses from the Newspage community

Copy all

Star Quote
Copy

Stuart Crispe
Founder at Sunny Avenue
This change in swap rates is a positive sign and shows an adjusted expectation that over a 2 or 5 year period, base rate will be lower than previously thought. I suspect swap rates falling is to do with the GDP contraction in May, as this will in turn reduce the speed that costs are rising, meaning there is a slight possibility that base rate can come down sooner. People have already stopped spending — just take a look around you when you next visit a restaurant. Rents and mortgages are up and confidence is down. Inflation will fall off a cliff sooner or later. I believe this could be the peak of borrowing costs, but we won't know for sure until we see the inflation data on 19th July.
Star Quote
Copy

James Myatt
Mortgage Broker at Embrace Financial Services
With US inflation dropping by 1% month on month, the Bank of England reporting that UK banks are well positioned to ride out any economic storms and GDP stagnating, there is more confidence going through the market that UK inflation will be brought under control without too much further action from Threadneedle Street. That, in time, will filter through to a softening in fixed rate deals. As ever I'd expect rates to follow the pattern of "rise like a rocket, fall like a feather", and for lenders to be scared of being inundated with applications if they move further and faster than their competitors. But I will gladly take this as positive news that we may be at, or very nearly at, the peak of fixed rates and that this may lead to improvements for borrowers in the near future.
Copy

Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
I believe this is more about the markets trying to influence the Bank of England's thinking rather than reflecting the direction of travel. But brokers will take any small win for their clients at this moment, whatever the reason behind them.
Copy

Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
Personally, I'd prefer to witness a consistent decline in swaps before we begin opening the champagne and celebrating prematurely. Even more advantageous would be for lenders to initiate a downward adjustment in pricing. Perhaps the 'markets' have come to recognise that UK Plc is barely holding on and that the ceaseless escalation in rates cannot persist indefinitely.
Copy

Editor
Darryl Dhoffer
Founder at The Mortgage Geezer
Looking at the 5-year swap rate for July, we started the month at 5.29%, had a high of 5.6% on 11th July and today it's running at 5.31% so hardly a big retraction and more in line with expectations. I'm not sure the GDP contractions will affect SWAP rates necessarily until the next quarter results are published from June to August. Even with contracting GDP, swap rates will remain high until inflation figures reach near the 2% target so we are now being told this won't happen now until late into next year. The US inflation figures are currently at 3%, only 1% above their 2% benchmark, and yet the Federal Reserve is looking to increase again their Base Rate from 5.25% to 5.5%. The difference is, the US tackled inflation a lot earlier. So UK 2-year SWAPS will remain high and volatile, and 5-year swaps will probably increase again over the next few months but then possibly settle to a benchmark of 5% at some point next year.
Copy

Platinum
Elliott Culley
Director at Switch Mortgage Finance
The swap rates are very volatile right now, and any positive or negative new data that is produced can cause a big impact on how the swap rates perform. Although on the face of it, it would seem bad news that the economy shrunk last month, this is a good news story when it comes to swap rates.
The Bank of England are trying to stagnate the economy with their rate rises and this could be the first sign it is working. This could mean rates don't need to rise as fast. However, there is no further evidence yet, that the Bank of England will pause on rate rises. More data will need to be seen first, the latest inflation figures are not far away, if inflation remains high, the swap reduction seen today, will mean very little. If inflation falls in line with predictions then we could see further drops. Time will tell and mortgage holders will need to be patient.
Copy

Philip Dubberley
Managing Director at Belvide Finance
If this trend continues and we see further falls, we will see how quickly lenders withdraw products and give customers the benefit of these rate drops. A lot of the rate withdrawals are not down to swap rates but maintaining service levels and the swap rates are being driven up by negative press in my opinion.
Copy

Graham Cox
Director at Bridging Hub
Perversely, the GDP data this morning, showing that the UK economy flatlined over the last three months, is good news for mortgages. It shows the economy is weakening, increasing the chances that interest rates may not need to rise as much as previously feared. Swap rates, if they continue to fall back, could allow lenders to offer cheaper rates over the coming days and weeks.
Copy

Rob Gill
Managing Director at Altura Mortgage Finance
There has been a distinct whiff of panic around the surge in swap rates recently. Panic puts a premium on prices, it can't last forever though, so it always seemed likely prices would start to come off sooner or later.
Copy

Paul Welch
Founder and CEO at Largemortgageloans.com
It’s too early to call whether swap rates are coming down. The real test will be when core inflation figures are published next week. Until then, it is pointless to speculate. However, it could be the market is speculating that Bank of England might need a slower approach.