April 2025 Mortgage Market Update – How Lenders Price Rates
If you're buying a property or your current mortgage deal is ending soon, understanding how lenders price their mortgage rates can help you make smarter decisions.
🏦 What Drives Mortgage Rates?
The Bank of England (BoE) sets the base rate, which impacts borrowing costs across the economy. Every six weeks, the BoE reviews and can change this rate in response to inflation, employment, global events, and economic data.
Alongside this, the BoE also manages SONIA (Sterling Overnight Index Average)—a key financial benchmark. SONIA is considered a "risk-free" rate and closely tracks the base rate, currently sitting around 0.05% below it.
Lenders use SONIA to price many of their mortgage products, especially fixed-rate deals.
What Are Swap Rates and Why Do They Matter?
When lenders offer fixed-rate mortgages, they’re taking on a risk. If the BoE raises rates, they still have to lend at the agreed fixed rate.
To manage this risk, they use interest rate swaps—a financial instrument that allows them to swap fixed payments for variable ones (typically SONIA-based). This allows them to lock in profit margins.
Example:
- Lender borrows £100M at a variable rate
- Lends it as 2-year fixed mortgages at 5%
- Secures a 2-year swap rate at 4%
- Locks in a 1% margin
If swap rates rise or fall, so too will the pricing of fixed-rate mortgage products.
🌍 What’s Been Moving the Market?
Recent Events Impacting Rates:
- Mini-budget (Oct 2024): Caused swap rates to spike from ~4% to nearly 6% in days, leading lenders to pull products
- Silicon Valley Bank collapse
- Surprise 0.5% BoE hike
- Weak UK GDP data
- Trump’s April 2025 tariff announcement: Swap rates dropped ~0.3%-0.4% in a week
These kinds of events create major swings in swap markets—and lenders respond by adjusting their mortgage products.
📉 Rate & Housing Market Forecast
Expected BoE Base Rate Path:
- Markets now expect three 0.25% cuts in 2025: May, August, November
- Base rate could end 2025 at 3.75%
- Medium-term outlook: 3–3.5%
Inflation & Jobs:
- CPI at 2.8%, nearing BoE’s 2% target
- But wage inflation (5.9%) and services inflation (5%) remain sticky
- Unemployment at 4.4%, forecast to peak at 4.8% by 2027
- Tariffs may pressure certain sectors (automotive, steel, pharma)
House Prices:
- Skipton forecasts:
- +3% in 2025
- +3.5% in 2026
- Long-term: 2.5–4% growth p.a.
- Market has held up better than expected despite macro headwinds
🔍 What to Watch: Lender Strategies
Different banks have different levels of flexibility when it comes to pricing:
- Barclays / HSBC – Strong liquidity; more aggressive pricing possible
- Santander / Lloyds – May need to raise funds to scale lending
- Nationwide – Likely to have unique hedging due to size and consistency
⚠️ What You Should Know as a Borrower
- Swap rates change every second
- Lenders set rates based on the live market
- Once a deal is submitted, lender treasury teams hedge the rate
- Repricing isn't always instant, even when market rates fall
- Lenders with old, higher swaps may delay passing savings on
- Volatility is expected to continue
💡 How Sarah Grace Mortgages Can Help
If you’re buying or your deal is ending soon, we can:
- Search the whole market to find you the best rate
- Lock in a deal early and track the market
- Switch you to a better deal if rates fall before your mortgage completes
Being proactive with rate changes is key in this volatile market—don’t wait until it’s too late.
Final Thoughts
The mortgage landscape in 2025 is highly dynamic. Swap rates are swinging on political and economic headlines, and lenders are reacting fast. Whether you're buying your first home or refinancing, timing and strategy have never mattered more.
