Swap rates dropped by around 0.25% yesterday, sparking fresh hope that mortgage rates may be approaching their peak.
Mortgage rates, which are at their highest for 15 years, tend to follow swap rates, which are used by lenders to predict future interest rates and lock in margins, and so yesterday’s fall provides a “glimmer of hope” for borrowers.
Two-year swap rates have dropped from 6% to 5.76%, while five-year swap rates have fallen from 5.24% to 4.97%, after rising in recent weeks.
The fall was sparked by America’s better-than-anticipated inflation figures, which marked a fall of 1% month-on-month, and it is hoped this could fuel greater confidence in the UK market, although ongoing volatility makes it hard to predict.
Andrew Wishart of Capital Economics, commented: “The US inflation data was a bit weaker than expected, and there is a view that the UK is following the US several months behind.
“If we are right, swap rates would reverse much of the rise over the past couple of months. Mortgage lenders’ spreads are particularly narrow at the moment, so mortgage rates might be a bit slower to fall.”
Capital Economics has predicted that mortgage rates will remain steady at just below 6% over the next 12 months. The average interest rate in a two-year fix is 6.75%, and has been edging closer to 7%.
Riz Malik, of mortgage brokerage R3, believes falling swaps could lead to mortgage rates also falling.
He said: “When we start seeing a trend of falling swaps and lenders reprice downwards, even marginally, that will be a glimmer of hope. It’s way too early to call the top of rate rises, especially considering the recent wage data.”
