If inflation ticks up, “all eyes will be on SWAP rates” – brokers

Ahead of tomorrow’s CPI data, Newspage asked brokers what could happen to SWAP and mortgage rates if inflation ticks up, and what could happen to rates if inflation surprises to the downside. Here’s what they had to say.

Ben Perks, managing director at Orchard Financial Advisers:

“If, as expected, the energy price cap has caused another uptick in inflation, all eyes will be on SWAP rates. They have been creeping up since the last inflation figures and this could see them rise further. This doesn’t necessarily mean we will see lenders increase rates immediately, and you’d like to think they have priced in a potential rise in inflation. But any further reductions will be delayed. However, if we get a pleasant surprise and inflation falls, it could give extra confidence to borrowers and lenders alike and inject some much-needed positivity into the market.”

Rohit Kohli, director at The Mortgage Stop:

“There is a real risk that the inflation figures published tomorrow are not what people are hoping for. We’ve already had some lenders increase rates on their products in advance of the announcement and they could be pre-empting what will likely come as a shock to many if inflation jumps up again. If we see inflation spike then expect lenders to react quickly as this will increase the likelihood of the Bank of England holding rates at 5.25% for longer, or worse still, result in a further 0.25% increase to the base rate in March.”

Michelle Lawson, director at Lawson Financial:

“Inflation edging up has been mooted for a while now so I doubt anyone will be shocked by tomorrow’s figures. Lenders will have already priced this in, hence the fluctuation and inconsistency of fixed and SWAP rates in recent weeks. A cut to the base rate will happen this year but it is a case of when and tomorrow’s inflation data will be a key determinant of the timing.”

Amit Patel, adviser at Trinity Finance:

“After months of declining inflation, we could see CPI edge up again for the second month in a row when the CPI data is released tomorrow morning. Alcohol and tobacco were the key inflationary drivers in the December data released in January, coupled with flight and hotel prices. Energy bills will push inflation upwards as the price cap has been increased together with geopolitical events tightening supply globally.”

Lewis Shaw, owner and mortgage expert at Shaw Financial Services:

“The best advice for any prospective borrowers is to avoid hesitation, not try to predict the market and accept that taking out a mortgage comes with an inherent risk. Don’t forget a mortgage is a long-term debt linked to the asset that provides shelter: it’s not a game of arbitrage. So in the long run, the average rate you’ll pay will even itself out. How many people held off in December when many rates were below 4% in the expectation that by now they’d be lower? Yet here we are in mid-February with many lenders increasing rates again. So if you’re ready to buy, then buy, if you’re ready to remortgage then remortgage and if you need to move then move. After all, the only thing you get from sitting on a fence too long is a sore backside.”

Craig Fish, director at Lodestone Mortgages & Protection:

“An increase in inflation is widely expected, partly down to the energy price cap, but also due to the troubles in the Middle East. SWAP rates are only part of the reason for lender rate fluctuations, and I suspect that over the coming weeks, there will be much toing and froing as lenders manage workloads and business levels as well as the fluctuating pricing on the markets. For anyone looking for a mortgage right now, the advice is to get that rate secured as soon as possible because if you don’t it could cost you significantly.”

Justin Moy, managing director at EHF Mortgages:

“It looks like SWAP rates have already priced in the potential of a small increase in inflation this month, with the steady increase across all metrics, and eventually the mortgage products bouncing from their lowest point at the end of January. Mortgage pricing is not just about inflation or SWAP rates, but also about the levels of activity and ability of lenders to administer application volumes. With lenders trying to stimulate the purchase market, there is a genuine push from most to keep those rates lower, increasing rates for those remortgaging. The Product Transfers will look after themselves, to a point.”

Ranald Mitchell, director at Charwin Private Clients:

“Inflation may well nudge up again, signalling longer-term pain for mortgage holders. With the energy cap rise, wages continuing to outpace inflation for the last six months and consumers starting to find their feet again, the Bank of England will be looking for more of a cooling-off phase before considering rate reductions. The result is that rates could remain higher for longer. In these uncertain times, we advise borrowers to focus on individual priorities rather than second-guessing economic movements.”

Andrew Montlake, managing director at Coreco:

“It has been another extraordinary period in the mortgage market where many a soothsayer has come unstuck. Accurately predicting the market with the myriad of forces currently at play, both nationally and globally, is a high-stakes game of chance. While any further rise in inflation is likely to be just a minor detour in an ongoing journey to the 2% target, borrowers adopting a wait-and-see approach could find themselves left behind. It is better to lock into a rate sooner rather than later, as there is a high possibility of future shocks and surprises. We also do not know if any artificial stimulus will be introduced by a Government desperate for votes, which could lead to an unexpected strengthening of house prices.”

Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:

“January typically sees an increase in inflation as certain items increase in price, for example, some insurance premiums go up every January. However, this is bad news for the mortgage market. At the last MPC meeting, two of the panel voted to increase rates, in stark contrast to what the majority of the public and politicians want. The inflation figures suggest that rates will stay high for longer and won’t come down until the summer.”

Akhil Mair, director at Our Mortgage Broker:

“In January, the data unveiled in December highlighted alcohol and tobacco as key factors driving inflation. This time, energy bills might take the lead. Fresh UK inflation data is set to be unveiled on Wednesday, February 14, with projections indicating a yearly uptick of 4% for the Consumer Price Index (CPI). Month-on-month figures suggest a slight downturn. For those inclined towards less risk, mortgage borrowers might find security in opting for 1-3 year fixed-rate mortgage, ensuring stability with no changes in monthly payments throughout the term. Alternatively, borrowers anticipating a short-term drop in interest rates might favour tracker rate mortgages or stick to the standard variable rate.”

Chris Barry, director at Thomas Legal:

“Inflation over the past few months has been artificially declining because of the way it’s recorded. The OBR state energy has reduced this winter compared to last, which it has, but not by anywhere near the figure stated. Last winter, the government gave everyone £400 towards their heating bills and withdrew the support this winter. Energy came down by circa £200 but because of the support withdrawal, households are still £200 worse off. Wages have been rising higher but this also will not be reported because the biggest strike agreements which took place a year ago in the NHS will drop out, showing that wages reduced. The government have not taken tangible steps to achieve their 2% target, it’s just timing. If anything, their actions have made inflation worse.”

Gareth Davies, director at South Coast Mortgage Services:

“Whilst a small increase wouldn’t be a huge surprise, I just hope lenders don’t use it as an excuse to hike rates for the sake of it. You could argue that the reductions in January ended up being a bit too keen, which is why we’ve seen slight increases over the last week or so. Now isn’t the time for lenders to try and cash in on the uncertainty in the markets. Let’s try and get consumer confidence back if we can.”

Ken James, director at Contractor Mortgage Services:

“There is a huge amount of anticipation ahead of tomorrow’s CPI print. Most of us feel that the news will be negative and that an increase is inevitable. It seems lenders have been factoring that in accordingly, as rates have been rising across the board. If we happen to see a drop in inflation then I am sure this will fuel a change of direction with rates coming back down and this will help energise what has been a positive start to 2024.”

Scott Taylor-Barr, principal adviser at Barnsdale Financial Management:

“Whenever I’m asked about what a borrower should do in terms of interest rates, my answer is nearly always the same: don’t gamble on thinking you can beat the market. No one at the end of 2020 was fixing their mortgage for a couple of years at 1.5% expecting interest rates to be 6% when their deal ended.

“You should concentrate on the things that you have more control over; how long are you planning on staying in this house, will you need to borrow more in a couple of years to fund an extension or a new kitchen, can you comfortably afford the repayments that are available right now? These are the questions borrowers can answer with far more certainty, and are far more useful than trying to guess what mortgage deals may or may not look like in 6 months’ time.”