As a Guildford mortgage broker that specialises in a whole range of mortgage products, we’ve probably been asked (and have answered) every possible mortgage-related question that most people could think of.
If you’re in the market for Guildford mortgage advice, or are about to apply for a mortgage, then chances are you may have seen us answer some of those questions via our series of mortgage advice articles.
However, there is one question that we’re never asked. And it’s one that is quite important, too, particularly right now as people play the mortgage waiting game in the hope that each new day will see mortgage rates go down, rather than up.
And that question is …
What is a swap rate?
Perhaps the reason why we’ve not been asked the question is that it lies at the more technical end of the mortgage world. But before we explain how swap rates affect you, let’s first explain what they are.
A swap is when two parties agree to swap payments from one asset to another for a fixed period of time. In the case of mortgages, the lender has to pay the financial institution that they secure the funds from a rate that’s large enough to mitigate the risks associated with offering fixed rate mortgages when the cost of borrowing is constantly in flux.
A swap rate is a rate based on what the markets think interest rates will be in the future. If these rise, then mortgage lenders will increase their rates so that they don’t lose out. Generally speaking, if swap rates go down, mortgage rates go down. If they go up, so too do mortgage rates.
What’s happening right now?
Simply put, swap rates are going up. So, those who know what to look for will be putting 2 + 2 together and coming up with 4 – that is, an understanding that fixed rate mortgages will also be going up, too. Those who don’t understand the relationship between fixed rate mortgages and swap rates are more likely to be swayed by recent news reports that fixed rate mortgage rates are decreasing.
As a result, it’s just as likely that people are thinking ‘if mortgage rates are now 4% when they were 6% a couple of months ago, then I’ll just wait for them to come down even further.’
Sadly, this isn’t the case. Fixed rate mortgages are governed by the swap rate, so whilst you might just be able to secure a 4% fixed rate mortgage today (although these are disappearing fast), there’s a good chance that it won’t be for very long – at all.
Lock in the best rate now
In the short term, we believe that fixed rate mortgage rates are going to increase – not decrease. If we are right, then whatever rate you can secure today might just be the best mortgage rate you’ll be able to access for a while.
Even if you think you’ll only need to apply for a mortgage in six months’ time, the rate your lender agrees today is locked in for six months.
Let’s say rates go back up to 6% in two months’ time but you’ve agreed a rate of 4% today, then that rate is yours when you come to take out the mortgage (within 6 months of receiving the offer, of course). Equally, if in six months’ time rates drop to 2%, you can ditch your previous rate and take advantage of the new, preferable rate. Either way, it’s win-win.
Waiting for better rates? Now might not be the best time to delay. Contact Complete Mortgages to speak with a Guildford mortgage adviser on 01483 238280 or e-mail info@complete-mortgages.co.uk.
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