Swap rates increased by 0.13% in the week following last Wednesday’s Autumn Budget, but historical trends suggest there may be better news on the horizon, Excellion Capital has revealed.
Analysis found that swap rates historically trend downwards by as much as -0.85% in the month following a Budget announcement.
Since July 2020, the largest swap rate drop came following Liz Truss’s controversial mini-Budget in September 2022.
One month after the mini-Budget, 1-year swap rates were down -0.75% and 5-year rates down -0.85%.
However, in the month leading up to the mini-Budget, swap rates rose significantly, with 1-year rates seeing a 1.46% increase, and 5-year rates seeing a +1.69% increase.
While rates did fall, they did so from the highest point they had been at for more than two years.
The Autumn Statement of 2023 saw 1-year rates fall by -0.43% and 5-year rates fall by -0.72%, while October 2021’s Autumn Budget and ‘Spending Review 2021: A Stronger Economy for the British People‘ saw 1-year rates fall by -0.19% and 5-year rates fall by -0.11%.
Robert Sadler, vice president of real estate at Excellion Capital, said: “The immediate increase in swap rates we have seen in the days following the Budget tells us that the market has reacted badly to the Government’s plans, and this is very much supported by the profoundly negative sentiment we are hearing about from lenders and investors, with both expressing concern about the impact of increased taxes on economic growth.
“Ultimately, the Budget sends mixed messages, combining aspects of expansionary fiscal policy, such as increased spending, with the contractionary fiscal policy of increased taxation.
“It seems the Government is trying to drive a car with one foot down on the accelerator and the other on the brake.”
He added: “This is causing real frustration in the market because everything was finally starting to improve after four years of continuous knocks, from lockdowns to historically rapid Base Rate increases – and this Budget is being perceived as yet another blow against the private sector in favour of the public sector; a redistribution of wealth towards the public purse.
“However, while the immediate impact has been a partial depression on real estate activity and the availability of cheap debt – as demonstrated by the impact on swap rates – we are continuing with a ‘business as usual’ mindset because that’s the example our clients are setting.
“Entrepreneurs are able to endure an awful lot and still persevere. Our clients are very resourceful, always updating their strategy to deal with economic challenges and we will be on hand to assist them navigate the currently muddy waters of the real estate economy.”
