As mortgage rates are predicted to fall, home buyers might soon find it easier to secure affordable loans. Specialist property lending experts at Octane Capital have analysed average swap rates over 30 and 60-day periods, indicating that a reduction in mortgage costs could be imminent with an expected base rate cut from the Bank of England on 1st August.
Understanding Swap Rates
Swap rates are essential in the mortgage market as they reflect the cost lenders incur when securing fixed-rate funds. These rates are generally based on government bonds, known as Gilt yields, which predict future interest rate movements. When swap rates decrease, mortgage rates typically follow suit, making loans more affordable for buyers.
Recent Trends in Swap Rates
With the UK economy showing signs of recovery and inflation falling to the target rate of 2%, a cut in interest rates seems likely in August, marking a year since the Bank of England’s base rate peaked at 5.25% in August 2023. Octane Capital’s analysis reveals a downward trend in swap rates, suggesting that the mortgage sector is already preparing for this anticipated change.
Over the past 30 days, swap rates have decreased at an average daily rate of -0.22%, contrasting with a previous 30-day period where rates increased by 0.06% daily. This pattern is also evident over a longer 60-day period, with a daily average decrease of -0.08% compared to a prior increase of 0.13%.
Expert Insight on Market Impact
Jonathan Samuels, CEO of Octane Capital, shared his perspective on these developments: “With inflation finally falling to within the Bank of England’s target rate of two per cent, there’s a high chance that we could see a cut to interest rates come August, a year on from them hitting their recent peak of 5.25%.”
Samuels continued, “We’re already seeing swap rates start to reduce in anticipation of a potential base rate cut and 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.”
Implications for Home Buyers
The anticipated reduction in mortgage rates is expected to bring relief to current mortgage holders and attract new buyers who have been deterred by high borrowing costs. As the Bank of England’s decision draws near, the housing market might witness increased activity, with more affordable loans spurring interest and transactions.
The positive outlook on swap rates and the potential interest rate cut reflect a broader improvement in the UK’s economic conditions. For prospective home buyers, this could mean a significant shift in affordability and market accessibility.
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