Lenders already dropping rates ahead of anticipated base rate cut
Mortgage rates are expected to fall as lenders capitalise on cheaper funding, following a decline in average swap rates, according to Octane Capital.
The specialist property lender analysed average swap rates over 30- and 60-day periods to forecast market trends ahead of an anticipated base rate reduction by the Bank of England on Thursday.
Mortgage market swap rates represent the price lenders pay financial institutions to secure fixed-rate funds, offsetting short-term risks associated with fixed rate mortgages. These rates are generally based on government bonds, known as gilt yields, reflecting market expectations for future interest rates. In essence, changes in swap rates impact mortgage rates directly — and current trends show a decline.
With the UK economy improving and inflation hitting the target rate of 2%, a cut in interest rates is widely expected in August, a year after the Bank of England increased the base rate to 5.25%.
The mortgage sector is already responding, with swap rates showing early signs of decline. Last week, major lenders Nationwide, HSBC, and Barclays announced lower rates on a number of their mortgage products.
Octane Capital’s analysis indicates that over the past 30 days, swap rates have decreased at an average daily rate of 0.22%. In the preceding 30 days, swap rates increased at an average daily rate of 0.06%.
The downward trend is consistent over a longer period. Over the last 60 days, swap rates have fallen by an average of 0.08% daily, compared to an average daily increase of 0.13% in the previous 60 days.
“We’re already seeing swap rates start to reduce in anticipation of a potential base rate cut,” said Jonathan Samuels (pictured), chief executive of Octane Capital. “We expect this trend to continue as the next Bank of England decision approaches.
“This will be welcome news for mortgage holders who have seen the cost of their repayments climb considerably in recent times, and so too for prospective buyers who have had to reevaluate their position in the market due to increased borrowing costs.”
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