Swaps edged up following rate cut

It's natural to expect a fall in the Bank of England base rate to directly impact the pricing of fixed rate mortgages. We've had several clients ask us whether this now means fixed rates will fall, and we can understand why.

However, there are many factors that go into the pricing of fixed rates; not least "swap rates". These are the rates at which mortgage lenders can borrow at to hedge against future interest rate movements. Swap rates factor in interest rate expectations, inflation and the wider economic environment.

If the fall in base rate had already been factored in and it wasn't unexpected, then this won't neccessarily mean fixed rate mortgage products see any downward movement.

It's important to note for those with existing fixed rate mortgages; nothing will change. The rate is locked in for the term of the product.

For those getting a new mortgage, there's potential for a rate change - both up or down, and this will be driven by the overall pricing strategy of the lender.

Welcome to the twist in the tale every mortgage client needs to know. Swap markets, not the Bank of England, decide your fixed-rate fate, and they’re nudging in the wrong direction. Swap rates, which drive the cost of fixed-rate mortgages, ticked up slightly on Friday, just a day after the Bank of England cut its base rate to 4% in a narrow decision. While some lenders, including Halifax, Nationwide, HSBC and TSB, have trimmed a few fixed-rate deals, others have held steady or even nudged certain products up. However, 2-year fixed rates are now cheaper than five-year fixes bringing with it a sense of positivity, but and there is always a but! Don’t expect the base rate cut to slash mortgages overnight, lender Competition is fierce, but they are targeting certain buyer profiles. If you fit their criteria, you could lock in a good rate before it disappears. Given the ups and downs of the last few years clients would be prudent to Act now.