UK fixed mortgage rates are not set from the Bank of England base rate. Lenders fund fixed-rate lending at a cost tied to swap rates, add a margin covering capital, servicing, credit risk and distribution, and the rate you are offered is the sum of the two. The chart on this page tracks both lines every month since January 2009 and shows the gap between them. Mortgage One is a whole of market mortgage adviser that tracks swap rates and lender pricing to time fixed rate decisions for borrowers.

If you want the current pricing read against your own deal rather than the market average, call 01202 155992 or contact Mortgage One.

How fixed mortgage pricing actually works

A fixed mortgage rate is a funding cost plus a margin. Lenders hedge fixed-rate lending against swap rates, the market price of swapping a floating rate for a fixed one over a set term. In June 2026 the five year swap sat at 4.11% and the average five year fixed at 75% LTV at 4.65%.

A swap is a contract between two parties to exchange interest payments over an agreed term. One side pays a fixed rate, the other pays a floating rate. A lender writing five year fixed mortgages takes on the risk that rates rise while it is locked into a fixed return, so it uses a swap to convert that exposure back into something predictable. The price of that contract, quoted as a percentage, is the swap rate. It is set by what the market collectively expects overnight rates to average across the term, not by any single institution.

In the UK these are usually SONIA swap rates, referenced against the Sterling Overnight Index Average. SONIA is the rate at which banks lend to each other overnight in sterling, administered by the Bank of England. Mortgage swap rates quoted in the trade press are these SONIA swaps, not the base rate and not gilt yields. The term matters because it matches the fix. A two year fixed rate is priced off two year swaps, a five year fix off five year swaps, and the two can move in opposite directions on the same day.

On top of the swap rate a lender adds its margin. That margin has to cover the capital the regulator requires it to hold against the loan, the cost of underwriting and servicing the mortgage for its full term, expected credit losses, the cost of distribution through brokers and branches, and the cost of hedging that a plain swap does not fully remove. Two borrowers taking the same fixed-rate mortgage term at different loan-to-value bands will be quoted different rates off the same swap, because the risk and capital cost differ.

The spread between the swap rate and the mortgage rate is not lender profit.

This is the point most commentary gets wrong. Lenders do not fund their entire mortgage book from swaps. A large share is funded by retail deposits, which carry their own price and their own competitive pressure. Capital requirements tie up shareholder funds that have to earn a return. Operational costs, arrears management and regulatory overheads all sit inside that gap. Treating the spread as margin in the profit sense overstates it substantially. It is a gross difference between two published rates, useful as a directional signal about competitive intensity, and nothing more precise than that.

What the chart shows, and what the forward band does not

The orange line is the Bank of England average five year fixed rate at 75% LTV. The blue line is the five year swap rate. The shaded area between them is the spread, 0.54 points in June 2026. The dashed section to the right of today is a scenario, not a forecast.

The fixed-rate line comes from the Bank of England quoted household interest rates series, a monthly weighted average of rates actually advertised to borrowers. The Bank publishes fixed rates at two, three, five and ten year terms across 60%, 75%, 85%, 90% and 95% loan-to-value bands. The 75% band is used here because it is the deepest and most competitively priced part of the market, which makes it the cleanest read on lender behaviour.

The forward section takes today’s spread and holds it constant against the market-implied path for swaps. It answers one narrow question: where would fixed rates sit if lenders neither widened nor narrowed their margin from here. The shaded band around it is not a confidence interval. It shows where fixed rates would land if the spread instead moved to its highest or lowest point of the last twelve months. Read it as a sensitivity, not a prediction. Lenders change their margin for commercial reasons that no curve anticipates.

The series runs to 210 consecutive months, January 2009 to June 2026, with no gaps. Use the range controls to move between one, two, five and ten year windows or the full history. The full history is where the compression story is visible, and it is the view worth looking at first.

For where the market expects the base rate itself to go, which drives the swap curve underneath all of this, see the Mortgage One interest rate forecast. For current fixed pricing across every loan-to-value band rather than the 75% band alone, see the UK mortgage rates chart.

Why does the spread between swap rates and fixed rates move?

The spread moves because lenders reprice on their own commercial timetable while swaps move continuously. Five forces dominate: swap volatility, service capacity, competitive pressure, capital treatment and lending targets. In a stable market the spread on five year money typically sits between 0.5 and 1.0 points.

Swap volatility is the first. When swaps move sharply the spread mechanically widens or narrows before any lender has decided anything, simply because one line has moved and the other has not yet. A lender watching swaps rise 20 basis points in a week is watching its margin evaporate in real time on every application still in the pipeline at the old price.

Service capacity is the one outsiders miss. A lender with a four week underwriting backlog does not want more business at any price. The fastest way to slow the flow without announcing anything is to widen the margin and price itself down the sourcing tables. When the backlog clears, the margin comes back in. Some of the spread movement across any given quarter is operational, not economic.

Competitive pressure works the other way. Lenders watch each other daily and a visible gap at the top of the best-buy tables is answered within days. Capital treatment shapes the floor, because a loan at 90% LTV consumes materially more regulatory capital than the same loan at 60%, and that difference is priced into the margin rather than the swap. Lending targets do the rest. A lender behind on its annual volume in the fourth quarter will cut margin to buy market share, which is why the spread often narrows into December and widens again in January.

How the lender margin compressed from three points to half a point

The long-run direction is compression. In 2012 the average five year fixed rate sat more than three points above the equivalent swap. In June 2026 that gap was 0.54 points, and it has moved 0.01 points over the previous twelve months. Lenders are competing far harder for the same borrower than they were a decade ago.

The 2012 gap reflected a mortgage market still repairing after the financial crisis. Funding was expensive, capital was scarce, appetite was thin and the number of lenders competing for prime five year business was small. Everything since has pushed the other way. Cheap central bank funding schemes reduced reliance on wholesale markets, new entrants and specialist lenders crowded the market, and price comparison moved from a phone call to a sourcing system that ranks every product in the country in under a second.

The practical consequence is that there is far less room left in fixed pricing than borrowers assume. When the spread is already near half a point, a lender cannot absorb a rise in swaps by trimming its margin, because there is very little margin left to trim. That is why in a rising swap environment fixed rates now follow upward faster and more completely than they did fifteen years ago. Compression is good for borrowers on the way down and unforgiving on the way up.

What happened to the spread during the September 2022 mini-budget

The September 2022 mini-budget is the clearest example of the spread collapsing. The five year gilt yield rose 96 basis points across the Friday and the following Monday, the largest two-day move since Refinitiv records began in 1987. Swaps repriced within hours. Fixed mortgage rates could not.

That gap in speed is the whole story. Every fixed rate on sale that Monday morning had been priced against a swap curve that no longer existed. Lenders were left offering to lend for five years at rates below what it now cost them to fund. The margin did not narrow gradually, it vanished, and on some products it went negative. Halifax, Virgin Money and Skipton Building Society pulled ranges within days. Halifax attributed the change to significant changes in the cost of funding.

Withdrawing a product range looks dramatic from outside and is entirely mechanical from inside. A lender cannot honour an open pipeline at a loss indefinitely, and it cannot reprice ten thousand products individually overnight. Pulling the range, recalculating against the new curve and relaunching in days is the only available response. Understanding this is what separates informed commentary from the assumption that lenders withdrew products to punish borrowers or to profiteer. They withdrew them because the spread had gone.

The same mechanism operates in miniature all the time. Any sharp swap move compresses the spread first and triggers repricing second. The mini-budget is simply the version large enough to be visible from space.

Where that mechanism sits in the current cycle is a live question for anyone whose deal ends this year. For a view on your own timing rather than the market average, call 01202 155992 or contact Mortgage One.

Why have fixed rates not fallen when swap rates have?

Because lenders reprice in batches, not continuously. Swaps move every second the market is open. Fixed mortgage rates change only when a lender issues a new product range. A swap fall therefore shows up in fixed pricing with a lag of roughly 2 to 6 weeks, and only if the fall persists.

No lender reprices on a single day of favourable swaps. Launching a product range means repapering illustrations, updating sourcing systems, briefing distribution and committing to hold the price for a period. If swaps drop for three days and recover, a lender that repriced on day two has locked itself into lending below its own funding cost. Lenders therefore wait for a move to look durable, which builds in delay by design rather than by reluctance.

Pipeline is the second reason. A lender with a large book of applications already agreed at the old price has to fund those at the old economics. Cutting the new rate immediately widens the gap between what it is earning on the pipeline and what it has just promised new borrowers. Managing that transition takes weeks.

For borrowers the practical read is straightforward. A narrow spread means lenders are competing hard and there is little pricing headroom left, so fixed rates will track swaps closely in both directions. A widening spread often signals repricing ahead, because lenders rebuild margin before they need it rather than after. Neither condition tells you what to do on its own, which is why timing a fix or a remortgage is a judgement about your own deal end date, your loan-to-value and your tolerance for payment uncertainty, not about the chart alone.

The lag also explains why the standard variable rate behaves differently again. An SVR is not priced off swaps at all, it is set at the lender’s discretion, which is why it rarely falls as quickly as new fixed pricing does. Buy-to-let fixed rates follow the same swap-plus-margin structure as residential, but carry a wider margin reflecting the different capital treatment and risk profile.

Using, citing and reproducing this data series

The full series is free to download and free to reproduce with attribution. It covers 210 months from January 2009 to June 2026 with four fields: month, five year fixed rate at 75% LTV, five year swap rate, and the spread between them. It is updated monthly as the Bank of England publishes.

Use the Download the data (CSV) link beneath the chart for the complete series. The underlying rate data is published by the Bank of England. The spread column is calculated by Mortgage One as the simple difference between the two published rates.

To cite this page:

Mortgage One, Swap Rates and Lender Margin, https://www.mortgageonefinance.co.uk/swap-rates-and-lender-margin, accessed [date].

The chart may be reproduced in articles, research and presentations provided Mortgage One is credited and the page is linked. No permission request is needed. If you need the series in a different format, a longer history or a different loan-to-value band, email enquiry@mortgageonefinance.co.uk or call 01202 155992 and we will send it.

Data to June 2026. Figures as of 30 July 2026, London.

If you are a borrower rather than a researcher, the number that matters is not the market average but the rate you can actually get. For a free initial consultation on how current pricing applies to your circumstances, call 01202 155992 or contact Mortgage One.

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 are swap rates in simple terms?

A swap rate is the price of exchanging a floating interest rate for a fixed one over an agreed term. Lenders use swaps to make fixed-rate mortgage lending predictable. The swap rate reflects what the market expects overnight rates to average across that term, so it is a market price rather than an official rate set by anyone.

2. Do swap rates set mortgage rates?

They set the funding cost, not the final rate. A lender takes the swap rate for the relevant term and adds a margin covering capital, servicing, credit risk and distribution. The mortgage rate you are quoted is the sum of the two, which is why two lenders pricing off the same swap can advertise noticeably different rates.

3. Are SONIA swap rates the same as swap rates?

In the UK mortgage market they are usually the same thing. SONIA swaps are referenced against the Sterling Overnight Index Average, the rate at which banks lend to each other overnight in sterling, administered by the Bank of England. When lenders and brokers talk about swap rates moving, they almost always mean SONIA swaps.

4. Why have fixed rates not fallen when swap rates have?

Lenders reprice in batches rather than continuously, so fixed rates follow swap moves with a lag of roughly two to six weeks. A lender will not launch a new range on a short-lived move, because it would risk lending below its own funding cost. Existing pipeline agreed at the old price adds further delay.

5. How quickly do fixed rates follow swap rates?

Typically two to six weeks for a sustained move, and faster upward than downward. Rising swaps compress a lender’s margin immediately, which forces action, while falling swaps simply widen it and can be absorbed for a while. Sharp moves can trigger repricing within days, as happened in September 2022.

6. What is a normal lender margin over swap rates?

On five year money in a stable market the spread usually sits between half a point and one point. In June 2026 it was 0.54 points. In 2012 it ran above three points. A margin well below half a point signals unusually intense competition, and one well above a point usually signals stress or capacity constraints.

7. Is the spread over swap rates the same as lender profit?

No. The spread is the gross difference between two published rates. Real funding costs include retail deposits, regulatory capital, hedging beyond the plain swap, underwriting, servicing and expected credit losses. The spread is a useful directional signal about competitive intensity in the market, but it is not a measure of what a lender earns.

8. Does the Bank of England base rate affect swap rates?

Indirectly. Swap rates reflect what the market expects overnight rates to average over the term, and the base rate anchors those expectations. But swaps move on expectation rather than on decisions, so they often shift before a Bank of England meeting and barely move on the day itself if the outcome was already priced in.