Brokers discuss the downward trend
SONIA swap rates have started edging downwards, with the latest two- and five-year rates having declined between July 11 and 13, from 6.038% and 5.241%, to 5.756% and 4.954%, respectively.
Mortgage Introducer sought the views of brokers on what is causing the decline and how it will translate into lower rates.
Returning confidence
Stuart Crispe (pictured), founder at Sunny Avenue, said the change in swap rates is a positive sign, and shows an adjusted expectation that over a two- or five-year period, the base rate will be lower than previously thought.
“I suspect swap rates falling is to do with the gross domestic product (GDP) contraction in May, as this will in turn reduce the speed that costs are rising, meaning there is a slight possibility the base rate can come down sooner,” he said.
Crispe added that people have already stopped spending, “just take a look around you when you next visit a restaurant.” This is accountable to, Crispe said, the fact that both rental prices and mortgage payments are up, while confidence is down.
“Inflation will fall off a cliff sooner or later; I believe this could be the peak of borrowing costs, but we will not know for sure until we see the inflation data on July 19,” Crispe said.
James Myatt, mortgage broker at Embrace Financial Services, said 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, he believes 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, Myatt said, will filter through to a softening in fixed rate deals across the mortgage market.
“As ever, I would 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,” he said.
However, Myatt said he 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.
Volatile rates
Elliott Culley, director at Switch Mortgage Finance, said swap rates are very volatile right now, and any positive or negative new data that is produced can cause a big impact on how they perform. Although on the face of it, Culley said, it would seem to be bad news the economy shrunk last month, he said this is good news 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,” he said.
Culley said this could mean rates do not need to rise as fast; however, there is no further evidence yet, that the Bank of England will pause.
“More data will need to be seen first - the latest inflation figures are not far away. If inflation remains high, the swap reduction seen on July, 13, will mean very little,” he added.
If inflation falls in line with predictions, Culley said, then we could see further drops; time will tell, he said, adding that mortgage holders will need to be patient.
Do you believe confidence is returning to the market following swap rates edging downwards? Let us know in the comment section below.
