Advisers should be swap rate soothsayers, not market mind readers

As I write, two, three and five-year SONIA swaps are all down on where they were a month ago, which perhaps gives you an understanding of why a large number of lenders have been cutting rates in recent weeks.

Of course, there is no guarantee that this is a trend that will continue for the foreseeable future. Swaps are, by their very nature, changeable and subject to all manner of conflicting ‘forces’.

We saw, for example, how quickly the dial can be moved on swaps back in May and June this year, when inflation figures – particularly core inflation – rose and the anticipation of what this would mean for rates having to go up further and faster in the future, clearly shifted swaps upwards.

To a point where most lenders had to act and this, of course, resulted in product withdrawals being made very quickly – hence the debate this generated on what was a fair product withdrawal timescale to provide to advisers and their clients.

You can see therefore the interconnected nature of all this, and if we are to learn anything from this as a sector, then it will be just how important swap rates are when it comes to pricing moves, but also product choice and product activity.

Joining the dots

I’m often asked to predict what might happen to buy-to-let rates next, and it often feels like a fool’s errand to even go there, particularly after what we have seen throughout 2023.

Certainly, trying to predict a long-term pattern of product price behaviour – be that in residential or buy-to-let – is incredibly difficult, but the clues for a more short-term view will lie in swap rate movements.

It therefore makes absolute sense to keep an eye on what is happening with swaps at any given time, particularly the month-on-month changes that happen, because this is undoubtedly shaping lenders’ thinking and their activity.

And the influence is considerable.

We might not be a lender that is reliant on the money markets for our funding, but we are certainly going to be influenced by it, simply because so many of our lender peer group are.

Again, as we saw earlier this year, if competitors move their offering on price, or withdraw similar products, then we have to make a decision on just how long we can leave a product out in the market.

No one is suggesting you shed any tears for lenders, but the reality is that in leaving a product out too long in the market at a price which is out of kilter with swaps and competitors, you could lose millions of pounds.

Not forgetting the service angle to all this – again having what becomes a market-leading, outlier product available for too long means you can receive business which is overwhelming for service capabilities.

For example, taking three weeks’ worth of business in one afternoon not only means you have to service that, but the likelihood is when you pull this product(s) it will take longer to come back to market with other options because you’ll need to deal with this pipeline first.