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Swap rates levelling off in ‘glimmer of positivity’ for mortgage pricing

  • 19/07/2023
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Swap rates levelling off in ‘glimmer of positivity’ for mortgage pricing
Swap rates are starting to show signs of levelling off, suggesting that a reduction in mortgage rates could be “on the cards”, a property firm has said.

Swap rates are the price lenders pay financial institutions when securing fixed rate funds and need to be large enough to mitigate risks associated with fixed rate mortgages.

According to analysis from Octane Capital, the price of swap rates has been increasing since interest rates started rising in 2021, with the exception of two monthly declines in November last year and January this year.

This month the average swap rate price increased by nine per cent compared to last month, coming to 6.21 per cent

The company said that there were signs that the market could be “starting to stabilise” so the cost of borrowing for homebuyers and remortgagors could fall.

It said that the average monthly swap rate increase per month was 18 per cent, which halved to nine per cent in July.

Octane Capital said that on a daily basis swap rates were showing signs of “positivity”, with the one-year swap for 11 July of 6.32 per cent falling to 6.12 per cent as of 18 July.

Five-year swaps have also fallen from 5.62 per cent to 5.24 per cent in the same period.

As of today, according to Chatham Financial one-year swaps stood at 5.67 per cent whereas five-year swaps came to 4.63 per cent.

Octane Capital’s CEO Jonathan Samuels (pictured) said: “Swap rates, while erratic from one day to the next, do start to portray where the market is heading over time and help us pre-empt whether the cost of borrowing is set to rise or fall.

“As the data shows, they have been increasing pretty much since interest rates started to climb when viewing the market on a month-to-month basis, which echoes the wider mortgage market landscape when it comes to the higher cost of borrowing facing buyers and remortgagors at present.”

He added: “However, there are initial signs that this tide may be starting to turn and this suggests that the market is expecting lower rates than previously thought. Only time will tell if this will be the case, however, this is certainly a glimmer of positivity within an otherwise gloomy economic picture.”

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