By Jonathan Samuels, chief executive of specialist property lender Octane Capital, writes:

The Bank of England’s decision to hold interest rates on three consecutive occasions in the last year has helped boost buyer confidence. 

This is due to the fact that the mortgage market has reacted by lowering swap rates and our previous analysis found that the average one year swap rate had fallen for five consecutive months between July and December last year, reducing from 6.09 to 5.2 per cent in this time.

Five year swap rates had fallen by an even greater extent, reaching an average of 4.32 per cent in December, down from 4.48 per cent in November, having also fallen consistently from an annual high of 5.25 per cent in July.

This reduction in swap rates has naturally resulted in a fall in mortgage rates, with the average rate currently offered on a two year fixed rate term at a 75 per cent LTV, for example, falling from 5.43 to 5.03 per cent over the course of the last year.

In turn, this has enticed buyers back to the market and the latest data on mortgage approvals shows that there have been three consecutive months of positive growth following the first decision to hold the base rate at 5.25 per cent in September of last year.

However, this time around the decision to hold the base rate at 5.25 per cent could have the opposite effect.

Why?

Well, the initial expectation from the market was that interest rates would fall in January, but despite this expectation, our latest analysis shows that five year swap rates have increased by a daily average of 0.27 per cent so far this year.

Over the same time period prior to the start of 2024, our analysis shows that they had been declining at a daily rate of 0.77 per cent.

Now that the market’s expectation has changed with rates being held for a fourth consecutive time, the recent increase in swap rates is only likely to continue. As the lead market indicator of mortgage rate movement, we can only anticipate that mortgage rates will start to follow suit in February.

So while the outlook may be a more positive one for the year ahead, there’s certainly no guarantee that mortgage rates will come down any further, or even remain at their current levels. For buyers, this means acting with urgency now if they do wish to secure the rates currently on offer.

Jonathan Samuels is chief executive of specialist property lender Octane Capital.