Estate agents in London are increasingly discussing swap rates with clients as volatility in interest-rate derivatives pushes average mortgage rates toward 6%. The Bank of England has held its key rate at 3.75% all year, but swap markets have surged, creating a disconnect that is straining housing affordability. Homeownership remains central to Prime Minister Andy Burnham’s growth agenda, yet rising borrowing costs risk undermining efforts to help younger buyers onto the property ladder.
Swap rates, used by banks to hedge mortgage risk and by traders to speculate on BOE policy, have swung wildly since the Middle East war began, fueling inflation fears and shifting market bets from rate cuts to multiple hikes. With nearly $1 trillion in daily sterling derivatives turnover, the UK’s unique exposure to swap-rate volatility is now directly impacting the housing market. Buyer inquiries fell 9% in September, supply is at a decade high, and mortgage approvals dropped to 54,900 in August.
Lenders are repricing faster to avoid being caught offering the cheapest mortgages when swap rates rise. BOE Governor Andrew Bailey noted a more than one percentage-point rise in mortgage rates since February, calling it a substantial tightening of monetary conditions.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing