Swap rates trend lower, Mortgages to follow?
- Swap rates give us a good indication of changes to come in mortgage costs – reflecting the cost of borrowing for lenders.
- The 5-year swap rates had settled to around 4% for much of the first half of the year but from May it trended upward (peaking at 5.5%) over concerns about core inflation.
- Data released on July 19th brought some relief to this upward trend. June inflation data was better than expected. Headline inflation was 7.3% and core inflation 6.4%.
- This better news on inflation filtered through into lower interest rates on 5-year swaps, dipping back below 5%.
- Data could be volatile over the next few months, but this is a good initial indication that inflation is starting to come down. Source: #Dataloft (https://dataloftinform.co.uk/), Investing.com
What are swap rates and what does it all mean?
Swap rates are what lenders pay to financial institutions to acquire fixed funding for a set period of time. Therefore when Swap rates increase, mortgages will almost certainly do the same.
It is interesting graphic to look at. However, it would be more interesting if we had a graphic for mortgages to run along side it. What you would find would almost certainly be a slightly different graph from the one above. The reason for this is that lenders really DO NOT WANT TO INCREASE THEIR MORTGAGE RATES! They tend to only increase them when the swap rates have gone up so much that they simply have no choice!
It is great news that swap rates are on their way back down. Mortgage rates have already started to drop slightly.
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