2-year and 5-year swap rates reacted strongly to the most recent inflation data, falling by over 0.2% in the first few hours alone.
With inflation now sub-4%, brokers said that sub-4% mortgage rates were also imminent, and that the rate war is set to intensify.
This was followed by the introduction of sub-4% rates by Gen H hours later.
According to Justin Moy, managing director at Chelmsford-based broker, EHF Mortgages: “Wednesday’s inflation data took the markets a little by surprise and swap rates have fallen sharply to reflect improved confidence in a base rate cut coming sooner than expected.
“The clock is now ticking on the emergence of a sub-4% mortgage rate. With lenders looking for a quick start to 2024, the mortgage price war could be bitter in January.”
Ben Tadd, director at Chippenham-based broker, Lucra Mortgages, agreed with Moy: “With inflation now south of 4% and edging ever closer to the target of 2%, swap rates have reacted very positively this morning.
“Off the back of this, I wouldn’t be surprised if a new sub-4% fixed mortgage is released before 2023 is done and dusted.
“If not, the way things are heading, we could well see a plethora of lenders with product rates starting with a three in early January as they look to build their lending pipelines for 2024.”
Jack Tutton, director at SJ Mortgages, also expects mortgage rates to start with a three in the near future: “The significant reductions in swap rates that we’ve seen this morning have gone further than I thought, but then inflation also fell more than many predicted.
“This will spread more Christmas cheer to mortgage holders whose deals are coming to an end soon and people who are looking to get on the property ladder next year.
“The question is, which lender is going to be the first to gift the present of a mortgage product beginning with a three?”
Simon Bridgland, director at Canterbury-based broker, Release Freedom, hazarded a guess: “Who will come out swinging first?
“My money is on HSBC, then Halifax, then Nationwide, and perhaps Virgin.
“One thing for sure is that Christmas has not looked this rosy in a while. I think mortgagors and brokers should all be raising a glass to a much more palatable New Year for interest rates.”
Darryl Dhoffer, director at Bedford-based broker, The Mortgage Expert added: “Mortgage rates have been flirting with the sub-4% barrier like something out of a Mills & Boon novel.
“We’re not quite there yet but following the fairly big reductions in swap rates seen today, brace for an announcement from a lender very soon — if not before Christmas then very early in the New Year.”
Ken James, director at London-based broker, Contractor Mortgage Services, commented: “Today’s inflation data and the impact on SWAP rates may be the tipping point we have been waiting for, with lenders starting to offer rates sub-4%.
“This certainly would be a great start to the 2024.”
Chris Sykes, technical director and senior mortgage adviser at Private Finance, added: “The drop in inflation today was larger than expected, which has likely been the driver of positive moves for SONIA swaps as markets opened.
“Recently, the Bank of England has been carefully managing our expectations for the base rate over the next year.
“Today’s inflation figures will help support a rethink around these projections. A fall in average mortgage rates, and particularly long-term rates, which in some cases could start to enter the high 3%s, will help restore confidence in the purchase market.”
Neezam Romjon, co-founder at Rebus Financial Services, concluded: “Lenders are feeling the pressure to lend given the drop in mortgage approvals this year.
“With this sharp reduction in swap rates, lenders should be able to offer lower interest rates, which will be welcome news for borrowers around the UK and help boost the property market.”
