Over the past few years, borrowers have become accustomed to seeing fixed-rate mortgage pricing move quickly and sometimes unexpectedly.
The Mini-Budget in 2022 provided perhaps the most dramatic example, but it has happened several times since. Most recently, conflict in the Middle East contributed to higher fixed-rate mortgage pricing despite the Bank of England leaving the Bank rate unchanged.
Two-year swap rates rose from around 3.6% in early March to more than 4.5% by early May. Average two-year fixed mortgage rates rose from 3.97% to 5.14% over the same period — an increase of more than 1.1 percentage points.
This helps explain short-notice product withdrawals
For borrowers, this can be confusing. For advisers, it increasingly means explaining why a mortgage available last week may cost more today, why products sometimes disappear at short notice and why different lenders respond to market events at different speeds.
New guide
In response to these questions, Imla has published a new guide, ‘How lenders fund fixed-rate mortgages: Swap rates explained’, together with a five-minute-read version designed to provide a straightforward overview of the key factors that influence mortgage pricing.
The starting point is understanding that fixed-rate mortgages are not directly linked to the Bank rate.
At times of uncertainty, clients need more than access to products; they need context, explanation and reassurance
Today, most new mortgages are written on fixed rates and their pricing is heavily influenced by swap rates.
Swap rates were largely the preserve of lender treasury departments, but in recent years they have become increasingly relevant to advisers because they play such an important role in determining mortgage pricing.
Forward looking
What borrowers need to understand is that swap rates are forward looking. Rather than reflecting where the Bank rate stands today, they reflect where financial markets believe interest rates may be heading in future.
As a result, events such as inflation concerns, government borrowing plans, political uncertainty and international conflicts can all affect swap rates and, ultimately, mortgage pricing. This helps explain why mortgage rates can sometimes rise or fall even when the Bank of England has taken no action.
When funding costs move rapidly, lenders must ensure that their products remain sustainable
It also explains one of the industry’s recurring frustrations: short-notice product withdrawals. When lenders launch fixed-rate products, they typically secure funding based on prevailing swap rates.
If those swap rates rise sharply, continuing to offer the same product at the same price may no longer be commercially viable. In some circumstances, lenders could find themselves writing new business at little profit or even at a loss.
The result is that products sometimes have to be withdrawn and replaced with new versions that better reflect current funding costs.
For borrowers, this can be unsettling. A product they believed was available may suddenly disappear or become more expensive before their application is complete. For advisers, it can mean revisiting recommendations, sourcing alternative products, recalculating affordability and reworking cases at very short notice.
It can also mean explaining to anxious clients why the deal they expected to secure is no longer available.
The starting point is understanding that fixed-rate mortgages are not directly linked to the Bank rate
Product withdrawals are rarely undertaken lightly. They create operational pressures for lenders, generate frustration for brokers and can attract unwelcome publicity. Yet, when funding costs move rapidly, lenders must ensure that their products remain sustainable.
Indeed, announcing a withdrawal can sometimes accelerate the problem. News of a rate increase often triggers a surge of last-minute applications as brokers rush to secure existing pricing for clients, quickly exhausting the remaining funding available at that rate.
Improved communication
This is why Imla has spent considerable time working with lenders and advisers to improve communication around product withdrawals and help the industry manage periods of volatility more effectively.
Advisers do not need to become economists. But understanding the forces that sit behind mortgage pricing is increasingly important in a market where global events can affect rates long before the Bank rate is decided upon.
For advisers, this increasingly means explaining why a mortgage available last week may cost more today
Most importantly, it helps advisers demonstrate their value. At times of uncertainty, clients need more than access to products; they need context, explanation and reassurance. Helping them understand why rates are changing, why products sometimes disappear and what options remain available is an increasingly important part of professional advice.
We hope that our new guide proves useful.
Kate Davies is executive director of the Intermediary Mortgage Lenders Association
This article featured in the July/August 2026 edition of Mortgage Strategy.
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Disclaimer: This story is auto-aggregated by a computer program and has not been created or edited by finopulse.
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