Richard Howes Managing Director of Mortgages Mortgage Market Update 4 Welcome to our Autumn edition of the Paradigm newsletter. Now the summer is over you could say we are entering the “business” end of the year as we head into darker nights and hopefully milder temperatures! It would be easy to look at the current UK housing and lending market and see only headwinds. There's no shortage of them. Between rising swap rates, a sluggish economy, global instability, patchy housing supply, shifting buyer demand, a regulatory agenda that never seems to slow down, and now a growing push to adopt AI before anyone is quite sure it is ready, as a broker you could be forgiven for feeling you are navigating the market with one hand tied behind your back. If we look at the market we should perhaps start with the part everyone feels first: the cost of a mortgage. At the time of writing, swap rates have been climbing again after a calmer summer. The two-year swap reached 4.26% as of early September, up from 4.06% a month before, while the five-year swap rose from 4.16% to 4.36% over the same period. That has fed straight through to the products, with the average two-year fixed rates now sitting at or around 5.60% and five-year fixes around 5.66%, both higher than the levels seen earlier in the year according to Moneyfacts. Due to the upward momentum of swap rates many lenders have re-priced upwards including the top six. This will put real pressure on lenders as we enter the final quarter of the year as they weigh up the need to decide about margin versus pipeline for 2027. The Bank of England, as I am sure you now know, decided to hold the Base Rate at 3.75%. The hold means the base rate has now remained at 3.75% for six consecutive months and was perhaps understandable given where the latest inflation pressure has come from. The continuing conflict in the Middle East has been a significant driver of the recent rise in inflation and swap rates, adding a layer of geopolitical uncertainty that markets have had to price in on top of ordinary domestic economic conditions. Wholesale funding markets are sensitive to exactly this kind of shock, and mortgage pricing inevitably follows where the wholesale market leads. It is worth remembering, though, that the current pressure has a different character to the volatility seen around the 2022 mini-Budget. This time it has not been driven by UK fiscal policy, which means lenders have responded calmly, repricing where needed rather than withdrawing ranges wholesale, in contrast to the sharper reactions of a few years ago. The supply and demand picture around housing is, characteristically, mixed. On the At a Glance: The cost of Borrowing 4.26% 2-year swap, early September (up from 4.06%) 4.36% 5-year swap (up from 4.16%) 5.60% Average 2-year fix (Moneyfacts) 5.66% Average 5-year fix (Moneyfacts) Bank of England Base Rate 3.75% Now held for six consecutive months
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