Pricing is driven by expectations and sentiment, creating a growing disconnect between base rate decisions and real-time mortgage rates
Mortgage brokers say recent rate movements are increasingly driven by market expectations rather than base rate decisions, as swap volatility continues to feed through into lender pricing. While base rate decisions remain a key signal for the direction of travel, day-to-day pricing is increasingly shaped by what markets expect to happen next.
Malcolm Davidson, of UK Moneyman, said fixed-rate pricing is now heavily influenced by expectations around future base rate movements.
“For us, it's a case of explaining that the fixed rates on offer are partly based on what the lenders think is going to happen to the base rate in the future.”
He said recent increases reflect a shift in those expectations.
“In terms of recent events, the fixed rates have gone up because it started to become evident that the base rate cut that was ‘baked in’ for March wasn't going to materialise due to events in the Middle East.”
That shift is creating a growing disconnect between what borrowers expect and what they see in the market.
Charles Calvert, managing director at Easy Mortgages, said the market is being driven as much by sentiment as underlying data.
“The market moves on sentiment as much as reality - and right now, sentiment is cautious.”
Jeni Browne, of Mortgage Finance Brokers, said the role of the base rate has diminished in recent years as borrowers and brokers focus more on capital markets.
“As the understanding of how SWAP rates impact mortgage rates improves, and now that most mortgages are arranged on fixed rates, the importance of Base Rate, especially from a borrower perspective has seen a real dip in terms of importance, with the focus being much more on the capital markets.”
Alan MacKenzie, of Your Next Step Mortgages, said the current environment is prompting more questions from clients.
“With the base rate holding steady, it does prompt a lot of questions from clients about why we’re seeing rate hikes. It’s a delicate balance, we know the base rate matters, but it’s really swap rates that are driving the live market right now. We do have to bring some education to the table, but of course, we don’t want to overwhelm anyone.”
He said this has added a new layer to conversations, with explaining pricing becoming as important as sourcing the right deal.
“As brokers, we’re really just hoping for some stability soon, it’s been a tough environment, and we all hope for a calmer period ahead.”
While the base rate continues to anchor longer-term expectations, rates are now reacting more quickly to external pressures, from geopolitical risk to shifting market sentiment. The result is a market where movements can appear counterintuitive for borrowers expecting them to track base rate decisions more closely.
The base rate is increasingly becoming a lagging indicator, rather than a real-time guide, with pricing driven by external forces and harder to interpret.
