Put very simply, when the price of £ swaps increase, it's highly likely the rate of mortgages will follow as well.
A swap rate represents the cost to a lender of borrowing money over a given period of time, for say two years, three years, five years or longer... on any particular day, over that period. In short it’s a reflection of the market’s view of how much that money will cost over that period for the bank to ‘swap’ variable rate money, and in return, receive a fixed rate.
Swap rates are a contract by which two parties exchange future cash flows. For mortgage lenders this means they can exchange variable rate funding, and receive fixed interest payments. This ensures there is no interest rate mismatch. This hedging of interest rate risk allows lenders to provide fixed rate mortgages to consumers.
Swaps are a good barometer of where the next Bank of England rate movement is likely to be heading, and where interest rates are likely to be over the longer term.
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