Swap rates have fallen inexorably in the last few months and this morning have fallen again with 2 year swap at 2.94% at the time of writing. Given that the two year rate was as high as 6.50% in mid June, these falls over such a relatively short period are unprecedented in recent times.

As we have mentioned in earlier blogs, we are currently going through unprecedented times and this sometimes call for unprecedented action. Accordingly on the back of recent economic data showing a continual and rapid economic slowdown, we are anticipating a rate reduction this Thursday of between 1.0% and 1.50%, bringing Bank Base Rate potentially as low as 1.50%

Whilst this will mean lower mortgage rates, the question remains as to exactly how much of the rate cut banks can realistically pass on. With funding still very constrained, greater and more stringent regulatory capital requirements from the FSA and an increased (and in some cases total) dependence on retail funding, we are likely to continue to see a large spread between BBR and Swap rates and actual consumer interest rates for some time to come.