The Intermediary Mortgage Lenders Association (IMLA) has released a new report and a concise guide aimed at mortgage advisers to clarify the role of swap rates in fixed-rate mortgage pricing. This initiative comes in response to significant fluctuations in swap rates earlier this year, which have directly impacted the mortgage market.
TL;DR: Swap rates, which influence fixed-rate mortgage pricing, rose sharply from 3.6% to over 4.5% between March and May 2026; this has led to a corresponding increase in average two-year fixed mortgage rates from 3.97% to 5.14%, affecting borrowers and lenders alike.
What are swap rates and why do they matter?
Swap rates are essentially the cost of borrowing money for fixed periods, which lenders use to price fixed-rate mortgages. When swap rates increase, lenders typically pass these costs onto borrowers, resulting in higher fixed mortgage rates. The recent rise in swap rates has been attributed to geopolitical tensions, particularly involving the US, Israel, and Iran, which have created uncertainty in financial markets.
How have mortgage rates changed recently?
Between early March and early May 2026, two-year swap rates surged from approximately 3.6% to over 4.5%. This increase has led to a significant rise in the average two-year fixed mortgage rates, which jumped from 3.97% to 5.14%. This shift represents an increase of more than 1.1 percentage points, impacting borrowers looking for fixed-rate options.
What this means for the mortgage market
For borrowers, especially those considering fixed-rate mortgages, the recent increase in rates could lead to higher monthly payments and overall borrowing costs. Landlords may also feel the pinch as increased mortgage rates could affect their cash flow and investment strategies. It’s essential for both groups to stay informed about these changes and consider their options carefully, especially in light of the current economic climate.
Frequently asked questions
How do swap rates affect my mortgage?
Swap rates directly influence the pricing of fixed-rate mortgages. When swap rates rise, lenders typically increase fixed mortgage rates to maintain their profit margins.
What should I do if my mortgage rate increases?
If your mortgage rate increases, consider reviewing your options. You may want to consult with a mortgage adviser to explore refinancing or switching to a different mortgage product that better suits your financial situation.