Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Strategy. Read the original article for full details.
IMLA Releases Guide on Swap Rates and Mortgage Pricing
The Intermediary Mortgage Lenders Association (IMLA) has published a new guide, ‘How lenders fund fixed-rate mortgages: Swap rates explained’, to help clarify the factors influencing fixed-rate mortgage pricing. This follows a period of rapid and sometimes unexpected changes in fixed-rate mortgage rates, which have affected both borrowers and advisers in the UK property market.
Recent events, such as the Mini-Budget in 2022 and conflict in the Middle East, have contributed to higher fixed-rate mortgage pricing, even when the Bank of England has left the Bank rate unchanged. For example, two-year swap rates increased from around 3.6% in early March to over 4.5% by early May, with average two-year fixed mortgage rates rising from 3.97% to 5.14% during the same period.
The guide aims to provide a straightforward overview of how swap rates, rather than the Bank rate, are the primary influence on fixed-rate mortgage pricing. Swap rates are forward-looking and reflect market expectations of future interest rates, meaning that factors such as inflation, government borrowing, political uncertainty, and international events can all impact mortgage pricing.
For letting agents and inventory clerks, understanding these dynamics is important, as rapid changes in mortgage rates can lead to short-notice product withdrawals and affect clients’ ability to secure expected deals. Lenders may withdraw products quickly if swap rates rise, to ensure their offerings remain commercially viable. This can result in operational pressures for lenders, frustration for brokers, and confusion for borrowers.
The IMLA guide, including a five-minute-read version, is intended to help advisers explain to clients why mortgage products may change or disappear at short notice, and why different lenders may respond to market events at different speeds.
Source: Mortgage Strategy