Here to help…Summer 2023

Converging movement of Swap Rates and Bank of England Base Rate  


Swap Rates influence Fixed Rate mortgage deals. The 5-year Swap, for example, rose to 5.21% following the mini-Budget in September, and dropped to 3.25% at the start of February. Since then, it’s recently fallen after a long upward path. 

(Sources: Chatham Financial, Sterling Overnight Index Average (SONIA) Swap rates, to 3 August 2023; Bank of England Base Rate, to 3 August 2023)

At the same time that we have another Base Rate rise, to 5.25%, we’ve also seen that a number of lenders have recently reduced their mortgage deal rates. And many would have already factored in this Base Rate rise of 0.25%. That increase was lower than the previous jump of 0.5%, and that’s because there has been some encouraging news.


The latest annual rise in inflation stands at 7.9% (the lowest increase in 15 months). Also, with regard to the month-on-month inflationary rise, this has reduced from

0.7% in the month prior to just 0.1% this time round. The upshot of this better-than-expected inflation figure is that the financial markets reacted well, as shown by the recent reduction in Swap (and mortgage) rates.

(Sources: Bank of England, 3 August 2023, Chatham Financial, Swap rates to 3 August 2023, Office for National Statistics, CPI, July 2023)


Why this is relevant for you

High inflation influences the Base Rate, as the Bank of England’s target inflation figure is 2%. Also, the government’s objective back in January was to get inflation down to around 5% by the end of the year.

 And Swap rates influence the pricing of fixed rate mortgage deals. Time will tell if reducing inflation, easing Swaps, and lower Base Rate rises is a temporary blip, or the start of a positive trend.


Where do we go from here?

This is the tricky question. There still remains the possibility of further Base Rate rises to help tackle inflation.

 However, as the chart shows, there were gloomy predictions after the mini-Budget, with Swaps rising sharply, but subsequently they did drop over the ensuing months. Will history repeat itself?

 Also, total mortgage lending in 2023 was expected to be around 15% lower than in 2022* (and maybe even lower in light of recent developments). This cooling of the housing market may again trigger enthusiasm amongst some lenders to fight for market share, as they do have the funds. 

(Source: *UK Finance, December 2022)


Your next step…

In short, the path forward is difficult to predict, but irrespective of whether you’re on a Fixed, Tracker or Standard Variable Rate (SVR), do talk to us if you want to (or have to) reconsider your mortgage borrowing needs. 

We’re also mindful that many of those who are renting (who may want to get onto the property-owning ladder) are unlikely to escape these rising costs, as landlords may pass on their extra cost of borrowing.

Whatever your situation, we would endeavour to help make sense of the multitude of options on offer. And you can take comfort from the fact that we operate in this sector day-in day-out (and currently many, many evenings), and have the expertise to deliver suitable advice.

Plus, we can liaise with the various parties (estate agents, solicitors, surveyors, etc) to help make this process as smooth as possible for you. That’s why it’s vital that you take advice in this ever-changing marketplace. In fact, the majority of you have done just that, as advisers accounted for around 84% of all mortgage distribution in 2022.

(Source: IMLA, December 2022 release)


Property prices

The other consideration is the general value of the property you’re borrowing against.

The fall in house prices in July was broadly stable, with an annual decline of 3.8%. This was similar to the 3.5% yearly fall recorded in June.

What is clear though, for homeowners, is that price rises over time may help to

offset any fall.  For example, in the last two years alone (within a difficult economic climate), the average property price has still risen by over £19,000 – about an 8% increase in value.

Also, prices over the long-term have been incredibly resilient, and in the last 30 years, for instance, we have seen the average property price rise from around £52,000 in Q2 1993, to about £262,000 in Q2 2023. That’s more than a fivefold increase. 

(Source: Nationwide, House Price Index, July ‘23 & Q2 ‘23)

With so much to consider, it can all be quite confusing, and that’s why you

should talk to us.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Your property may be repossessed if you do not keep up repayments on your mortgage.

Mortgage calculator

Monthly payments for a mortgage per £1,000 borrowed over 30 years

% Interest rate £ Interest-only* £ Repayment
0.25 0.21 2.88
0.50 0.42 2.99
1.00 0.83 3.22
1.50 1.25 3.45
2.00 1.67 3.70
2.50 2.08 3.95
3.00 2.50 4.22
3.50 2.92 4.49
4.00 3.33 4.77
4.50 3.75 5.07
5.00 4.17 5.37
5.50 4.58 5.68
6.00 5.00 6.00
6.50 5.42 6.32
7.00 5.83 6.65
7.50 6.25 6.99
8.00 6.67 7.34
8.50 7.08 7.69
9.00 7.50 8.05
9.50 7.92 8.41
10.00 8.33 8.78

Here’s how to use the mortgage payments calculator:  A £100,000 mortgage over 30 years, charged at a 5% interest rate would cost 100 x £5.37 (for Repayment) = £537 per month. * Excludes any payments to a separate savings scheme, to help pay off the capital amount borrowed.

This calculator only provides a guide to monthly payments and does not guarantee eligibility for a mortgage.  The actual amounts that you may have to pay may be more or less than the figures shown.  Please contact us for a personalised illustration.