SONIA Swap Rates:
The 2 and 5 Year Rates Behind Fixed Mortgage Deals

What are swap rates and what does the chart show?

A swap rate is the fixed rate one party agrees to pay for a set number of years in exchange for the floating overnight rate, in the UK the Sterling Overnight Index Average, or SONIA. The chart plots the Bank of England's overnight index swap spot curve at 2 and 5 years for every working day from 2 January 2009.

The series needs stating precisely, because the phrase swap rate covers several things. What the chart shows is the Bank of England's fitted spot curve at two and five years, a zero-coupon rate the Bank estimates each day from overnight index swap quotes. It is not a quoted par swap rate from a dealer screen, not the forward path of Bank Rate and not any lender's cost of funds. The two will usually sit within a few hundredths of a percentage point of the par rates quoted in the trade press, and they move together, so the chart tracks the same market the lenders are watching.

Hover any day for the 2 year rate, the 5 year rate and the Bank Rate in force. The toggle switches Bank Rate on and off, drawn as a stepped line so each decision shows as a step on the date it took effect. The status line beneath the chart states the date of the data it is showing. Only the two and five year tenors are charted, because those are the terms that price the great majority of UK fixed-rate mortgages.

Why the 2 year and 5 year swap rates matter for fixed mortgage pricing

A lender writing a two year fixed mortgage hedges it against the 2 year swap and a five year fix against the 5 year swap, then adds a margin for capital, servicing, credit risk and distribution. The swap is the cost of locking a fixed return for the term, so fixed rates follow it.

That is why the two tenors are the ones to watch, and why they can move apart. The 2 year swap answers to where the market expects Bank Rate to average over the next two years, which is dominated by the next few decisions. The 5 year swap takes in a longer view and a term premium for the uncertainty of holding a fixed rate for longer. When the market expects rate cuts the 5 year sits below the 2 year, and when it expects rises the order reverses, which is the single clearest reason five year fixes are sometimes priced below two year fixes.

What sits between the swap rate and the rate on a mortgage offer is the lender's margin, and that is a story of its own. How that gap has compressed since 2009, what it has to cover and why it is not profit are set out on our swap rates and lender margin page, which charts the spread against the five year fixed rate. This page tracks the swap itself. The margin page tracks what lenders add to it.

How do swap rates differ from the Bank of England base rate?

Bank Rate is the overnight rate the Bank of England sets at eight scheduled decisions a year and holds between them. A swap rate is what the market will pay today to fix for two or five years, roughly the average Bank Rate it expects over that term plus a premium. Swaps move daily and usually before the Bank does.

The chart makes the relationship visible. Bank Rate is the stepped line, flat for weeks and then jumping on a decision date. The swap lines move continuously around it, climbing when the market starts to price rises and falling when it starts to price cuts, often months before the step arrives. In a tightening cycle the swaps sit above Bank Rate, and in an easing cycle they sit below it. When the two year swap is well above Bank Rate the market is telling you it expects the Bank to raise, whatever the Bank said at its last meeting.

For a borrower this is the difference between the two questions people ask. Trackers and standard variable rates follow Bank Rate, so the decision dates are what matter to them. Fixed rates follow swaps, so the market's expectation is what matters, and a fixed rate can rise in a month when Bank Rate is held. Our Bank of England base rate forecast shows the path the market is pricing for Bank Rate itself, which is the forward view the swap rates on this page are built from.

If your fixed deal ends in the next six months and you want a rate reserved before the swap market moves again, call 01202 155992 or contact Mortgage One.

How quickly do lenders follow a move in swap rates?

Within days for a sustained move. A lender with products priced on last week's swaps is losing margin on every application in its pipeline once swaps rise, so the response is a withdrawal notice, often at a day's notice or none, then a repriced range. Falls pass through more slowly, because a lender cutting first gives up margin.

The mechanics explain the asymmetry. A rise in swaps is a cost the lender is already carrying on every new application, so repricing is defensive and quick. A fall in swaps is an opportunity rather than a cost, and lenders release it in steps as they compete for the remortgage pipeline, which is why the gap between swaps and fixed rates widens after a fall and narrows after a rise. A single day's move rarely triggers anything. A move that holds for a week or two does, and the size that matters is in the region of a fifth of a percentage point, because that is roughly what separates one product tier from the next.

The effect shows up in the quoted rates with a lag you can measure. The Bank of England's monthly averages of the fixed rates lenders were quoting, plotted on our chart of average fixed rates by LTV band, trace the swap lines on this page with a delay of a few weeks and a margin on top. The lender-by-lender moves that make up that average are tracked on our page asking whether mortgage rates are going up, which names which lenders moved and when.

What the swap rate history since 2009 shows

The series opens on 2 January 2009 with the 2 year rate at 1.41% and the 5 year at 2.45%, as the Bank cut towards 0.5%. The autumn 2022 peak put both tenors at their cycle high on 27 September 2022, 5.79% and 5.24%, and the 2 year went higher still at 6.12% on 6 July 2023.

Those three dates frame the whole chart. From 2009 to late 2021 both lines spent most of the period below 2%, which is the period that produced the sub-2% fixed rates many borrowers are still sitting on. The climb through 2022 was the fastest in the series, and the September 2022 spike shows how far a swap market can move in a matter of weeks when confidence in fiscal policy goes. The July 2023 high in the 2 year, above the 5 year, is the clearest inversion on the chart, and it is when two year fixes were dearer than five year fixes across most lenders.

Reading history on the chart is more useful than any single figure, because it shows what the market got right and wrong. The swaps priced cuts in early 2023 that did not arrive for another eighteen months, and through 2022 they rose faster than the Bank's own decisions, and both readings reached mortgage pricing within weeks. Our explainer on how gilt yields drive fixed rates covers why swaps follow the gilt market so closely and uses September 2022 as the worked example.

Reading today's swap rates before you fix

Read three things on the chart before choosing a fixed term: the level of the 2 year against the 5 year, the direction of each over the last month, and where both sit against Bank Rate. A 5 year below the 2 year means the market expects cuts. A rising 2 year means the next reprice is likely upward.

None of that tells you which product to take, because the swap is only the funding side of a mortgage rate. Two lenders reading the same curve quote different rates for the same borrower, the lowest live product in your loan to value band usually sits below the average, and the term that suits you depends on when you expect to move, how your affordability is assessed and how much certainty you want to pay for. What the chart does is tell you which way the pressure on pricing is running, which decides whether to reserve a rate now or wait for the next round. Our comparison of 2-year and 5-year fixed deals shows what the big lenders are actually quoting at each band on a checked date.

The chart will carry the latest published reading with its date in the headline line, so check that date against the day you are reading. The Bank of England publishes each working day's curve on the next working day, and a move that happened this morning is in the dealer screens before it is in any published series. A broker who priced fixed income for a living reads the curve the same way a lender's treasury desk does, and that is the reading Mortgage One brings to the question of when to fix.

To have the swap curve read against your own loan size, deposit band and timing before you commit to a term, call 01202 155992 or contact Mortgage One.

Back to Rates, Charts and Data

The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. If you'd like to understand what these moves could mean for you, speak to Mortgage One. We can explain your options and timings based on your specific circumstances.

FAQs

1. What is the SONIA swap rate today? The latest 2 year and 5 year readings sit in the headline line of the chart above with the date they belong to. They are the Bank of England's overnight index swap spot rates at those two maturities, published for each working day on the next working day, so the figure is for the most recent published day rather than this morning's screen price.

2. What is the current 5 year SONIA swap rate? Read it from the chart's headline line, which shows the 5 year rate for the latest published day alongside the 2 year rate and the change on the day and the month. Hover any date to see the 5 year rate on that day and the Bank Rate that was in force.

3. Does the chart show 3 year or 10 year swap rates? No. The chart tracks the 2 year and 5 year rates only, because those two tenors price the great majority of UK fixed-rate mortgages. Three year and ten year fixes exist and are priced from their own points on the curve, but they are a small share of lending and are not charted here.

4. Are swap rates the same as the Bank of England base rate? No. Bank Rate is the overnight rate the Bank of England sets at its scheduled decisions. A swap rate is the fixed rate the market will exchange for the floating overnight rate over two or five years, which reflects where it expects Bank Rate to go plus a premium for the term. Swaps move every day and usually move ahead of the Bank's decisions.

5. If swap rates fall, will my fixed mortgage rate fall? Rates on new fixed deals usually follow a sustained fall in swaps within weeks, although lenders pass falls on more slowly than rises. A fixed rate you already hold does not change for its term. The page on swap rates and lender margin explains why the gap between swaps and fixed rates widens and narrows.

6. Where does the swap rate data come from? From the Bank of England's published yield curve data, which gives the overnight index swap spot curve for every working day since 2009, with Bank Rate from the Bank's own record of decisions. The status line beneath the chart states the date of the data it is showing, and the headline line always carries the data date rather than today's date.

7. Should I wait for swap rates to fall before fixing my mortgage? Only if the chart shows them falling and your current deal gives you time. A rate can be reserved months before a deal ends, and a reservation can usually be replaced if pricing improves before completion, so the cost of reserving early is low and the cost of waiting through a rise is not. Mortgage One reads the curve against your own deal end date and loan to value band before recommending when to fix.