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Tumbling swaps could lead to cheaper fixed rates

Fixed rate mortgages could become cheaper if swap rates continue to fall at the pace they have over the past month, according to mortgage broker John Charcol.

Traditionally, the biggest influence on fixed rate pricing has been swap rates while the biggest factor influencing tracker mortgages has been Libor, the rate at which banks lend to each other.

Two-year swaps have fallen from 1.35 per cent to 1.20 per cent in the past month, while five and 10-year swaps have fallen from 1.6 per cent to 1.42 per cent and 2.33 per cent 2.14 per cent, respectively.

JC senior technical manager Ray Boulger believes if swaps continue to fall as sharp as they have, fixed rate mortgage pricing could come down.

He says: “Despite lack of capacity in the mortgage market, coupled with increased regulatory costs, still exerting upward pressure on rates, swap rate falls on the scale seen over the last month provide scope for some rate cuts.”

However, Boulger warns developments in the Eurozone could cause the money markets to freeze again, resulting in a further reduction in lending capacity.

Three-month Libor has fallen from 1.09 per cent in January to 0.99 per cent now, but Boulger believes the rate of reduction is not enough to cause tracker rates to fall.

He says: “I think the fall in three-month Libor is probably not enough to impact tracker prices.”

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