Decline follows Bank of England rate cut, signalling potential relief for borrowers
Swap rates have been declining since the Bank of England’s recent base rate cut, raising hopes of improved mortgage affordability for homebuyers and buy-to-let investors, specialist property lender Octane Capital’s analysis has indicated.
Following the Bank of England’s decision to lower the base rate to 4.5%, the average five-year swap rate has settled at 4.16%. This marks a decline from the 4.23% average recorded between the Autumn Budget and the end of last year. Earlier in January, rates had climbed to 4.31% before reversing course after the rate cut.
Swap rates influence mortgage pricing, as lenders use them to secure fixed rate funding and manage risk. These rates are typically tied to government bond yields, which reflect market expectations for future interest rate movements. When swap rates fall, mortgage costs often follow suit.
According to Jonathan Samuels (pictured), chief executive of Octane Capital, the downward movement in swap rates is beginning to filter through to mortgage pricing. The firm’s research shows that in 2024, the average buy-to-let mortgage rate stood at 4.53%, but by January 2025, it had dropped to 4.38%. Similarly, mortgage rates for owner-occupiers have fallen to 4.65%, compared to an average of 4.81% last year.
“It is, of course, still very early days, but current market indicators suggest that there is light on the horizon for the nation’s home movers and buy-to-let investors, and the year ahead is set to be one of far greater positivity when compared to 2024,” Samuels said.
He added that some industry sources are already reporting five-year swap rates dipping below 4%, which could further ease borrowing costs.
Lenders have also started adjusting mortgage rates in anticipation of lower interest rates, a shift that was not evident late last year despite previous base rate reductions.
“So, all in all, the outlook is a very good one for the year ahead, and we expect mortgage affordability to continue to strengthen over the coming months, bringing a much needed boost to property market sentiment,” Samuels said.
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