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Research from Moneyfacts.co.uk shows that the average two-year fixed and tracker mortgage rates have remained unchanged since the beginning of June. The lack of rate change this month comes despite SWAP rates (a derivative market lenders use to hedge themselves against interest rate fluctuation) falling noticeably since the beginning of May this year. The two-year SWAP rate has fallen by 0.31% to 0.74% since May this year, while the five-year SWAP rate has dropped by 0.39% to 0.80% and the 10-year by 0.40% to 0.95% over the same period.
Darren Cook, Finance Expert at Moneyfacts.co.uk, said: “It is clear that the Bank of England warning in May that it is watching mortgage rates ‘like a hawk’ is continuing to influence lenders, with the average two and five-year fixed mortgage rates, and the average two-year tracker rate remaining unchanged this month.
“However, the sharp SWAP rate declines seen in June have continued this month, with the two-year, five-year and 10-year SWAP rates decreasing by 0.11%, 0.12% and 0.13% respectively. This could be a result of markets now reacting to the anticipation that the Bank of England is expected to cut base rate before the end of 2019, following 12 months of economic uncertainty.
“Under previous normal market conditions, when SWAP rates took a sharp deviation, we could comfortably predict that fixed mortgage rates would follow suit after a three to four-week lag. However, with the hawk eyed regulator watching closely, it is unclear as to whether mortgage rates will respond to this most recent decline in SWAP rates. In fact, it may be the case that we need to get much closer to an almost certain base rate change before we see large-scale changes to average mortgage rates.
“It is not all bad news for borrowers however, with the difference between the average two-year and five-year fixed rates currently at 0.36% and the difference between the average five-year and 10-year fixed rate currently only 0.16%, borrowers are paying less than before to benefit from the security of locking into a fixed rate for a longer term amid current economic uncertainty.”
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