You’ve likely seen SWAP rates and the Bank of England base rate mentioned in the media, especially during periods of rate hikes or cuts. But what’s the difference between the two—and more importantly, which gives you a clearer indication of where mortgage rates are headed?
What Is the Bank of England Base Rate?
Set every six weeks by the Monetary Policy Committee (MPC), the base rate is the interest rate the Bank of England charges banks and building societies for borrowing money.
The goal?
To control inflation and encourage or slow down economic growth, depending on the situation.
When the base rate rises, borrowing becomes more expensive, and mortgage rates usually follow—eventually.
What Are SWAP Rates?
SWAP rates reflect the real-time cost of borrowing between financial institutions. They’re based on market expectations and are typically linked to SONIA (Sterling Overnight Index Average).
Unlike the base rate, which is reviewed only every 6 weeks, SWAP rates fluctuate daily, making them highly sensitive to:
-
Inflation data
-
Economic forecasts
-
Bank of England policy speculation
-
Global financial events
In essence, SWAP rates are the price banks pay to “lock in” fixed interest rates for a set period (e.g. 2, 5, or 10 years).
So, Which Is the Better Indicator of Mortgage Rate Movements?
The answer: Both are important—but SWAP rates are more immediate.
-
The base rate influences market sentiment and longer-term monetary policy.
-
SWAP rates reflect what the market believes will happen—often weeks or months in advance.
So, if you’re trying to anticipate fixed-rate mortgage trends, watching SWAP rates may give you a faster and clearer signal.
Why Should Borrowers Care?
Lenders base fixed mortgage deals primarily on SWAP rates, not the Bank of England base rate. This means:
-
Mortgage rates can rise before a base rate hike.
-
Or fall even if the base rate stays the same, if market sentiment shifts.
Final Thoughts
While the Bank of England base rate sets the tone for the economy, SWAP rates often dictate the real cost of fixed borrowing in the UK.
If you’re planning to remortgage or buy soon, it’s wise to:
-
Keep an eye on SWAP rate trends
-
Speak to a broker who understands both metrics
-
Lock in rates when they are in your favour
You’ve probably heard a lot in the news over the past few years around SWAP rates and how these affect Mortgage interest rates. There is also the Bank of England base rate, with this being decided on every 6 weeks by the Monetary Policy Committee (MPC) of 9 individuals.
So what’s the difference between them?
The Bank of England Base Rate sets the rate they would charge Banks and Building Societies for loans. Using a variety of metrics the MPC use this to (hopefully) grow the economy by making money cheaper or more expensive to borrow, depending on the goal at the time.
As a knock-on effect then what the base rate is and crucially what analyst’s feel it will be over the next 5 to 10 years will then influence what banks would charge both consumers (ie, us looking for a mortgage or loan) or other banks, when they lend the money out to other financial institutions.
The rate at which bank lend to each other is the SWAP rate, set by the Sterling Overnight Index Average (SONIA).
Whereas the MPC meet every 6 weeks, SWAP rates are a lot more volatile, influenced by what analyst’s feel is happening in the market and if they feel borrowing will get cheaper or more expensive over the longer term period. These do change daily.
To answer the question over which is a better indicator as to where rates are headed, the simple answer is they both do. Where the difference lies is the Base rate perhaps influence rates where as the SWAP rates are the true rate at which banks and financial institutions lend to each other. In turn, this the leading to the rates published by lenders.
