Month: September 2026

In the first week of September, Halifax, TSB and HSBC all trimmed fixed mortgage rates while the wholesale costs those fixes are built on went sharply the other way. Moneyfacts’ Rachel Springall said on 2 September that swap rates “have risen dramatically over the past week, reaching 30-day highs”, and that the UK 10-year gilt yield had climbed above 5.2%, its highest since 2008.

Only one of those facts can win. Moneyfacts figures for 2 September put the cheapest remortgage two-year fix at 4.55% and the cheapest homebuyer two-year fix at 4.47%, against an average two-year fix of 5.59% on 3 September. Those best buys are, for now, priced below where the market says funding costs. Here is why that happens, why it never lasts, and why panic is still the wrong response.

What are swap rates and why do they set fixed mortgage rates?

A fixed-rate mortgage is a promise to take a set rate for two or five years whatever happens in between. That is a risk for a lender funding itself at rates that move, so lenders hedge it with interest rate swaps: contracts that exchange a floating stream of interest for a fixed one over a matching term.

The price of that contract is the swap rate, in effect the market’s forecast of average short-term rates over the term. A lender prices a fix by starting from the matching swap and adding its costs, risk margin and profit, so when the swap moves the poster rate moves with it. Gilt yields, the benchmark for long-term sterling borrowing, pull in the same direction: a 10-year yield at its highest since 2008 drags swaps up because both price the same expectation of rates staying higher for longer.

Why does Bank Rate matter less to a fixed rate than most people think?

Bank Rate has sat at 3.75% since 18 December 2025 and was held again on 30 July, yet fixed-rate pricing has moved throughout. Bank Rate is a today number; a fixed rate is a next-five-years number.

Fixes follow the market’s forecast of Bank Rate, which is far more volatile than Bank Rate itself. That is why UK mortgage rates went up in August while Bank Rate did not.

The forecast has shifted because the inflation picture has. Governor Andrew Bailey said on 30 July that inflation had fallen faster than expected but that the Middle East conflict meant high and volatile energy prices. Ofgem gave that worry a number on 26 August: the price cap rises 4% to £1,723 from 1 October, on wholesale gas up 11% in three months. That is what makes investors demand a higher yield.

Why would a lender cut rates into a rising market?

Three reasons, usually together.

The first is volume. The Bank of England’s Money and Credit release on 1 September showed 56,053 mortgage approvals for house purchase in July, the lowest since January 2024 and down from a revised 58,215 in June. A weak summer leaves lending targets short, and competition for a thin pool of borrowers drove the week’s cuts: Halifax by up to 0.11 percentage points for purchase and 0.13 for remortgage, TSB by up to 0.20 points across two, three and five-year products, HSBC on two- and five-year remortgage rates.

The second is timing. A cut announced on 1 September was almost certainly agreed on August swap rates; the lender has not yet caught up.

The third is hedging. Lenders buy swaps in tranches, in advance, to cover planned lending. A tranche bought before the move is locked at the old price, so fixes can be sold against it until it runs out. The next tranche costs what swaps cost now.

What were the cheapest deals on offer this week?

The best buy sits more than a full point below the average in every column, a reminder of why the advertised mortgage rate is not the rate most borrowers are offered. The best buys also carry the thinnest margin over the swap, so they go first.

Why does the window close so quickly?

When swaps jump, the deals closest to the old funding cost turn loss-making first. A lender at 4.47% has less room than one at 5.59%, so the market leader acts first, usually by withdrawing the product at short notice before it attracts applications the lender no longer wants at that price. That is why Moneyfacts urged borrowers on 2 September to secure a new deal quickly.

None of this is a prediction: swaps rose over one week and can fall back the next. The narrower point is that a lender cutting into a rising market is spending down a hedge or chasing a target, and both run out.

Does any of this mean a borrower should rush?

Here is the case against the headline. Nobody can time swap rates, including the lenders. A borrower who grabs a two-year fix because five-year swaps look expensive, while planning to stay put for a decade, has solved a small problem by creating a large one. Early repayment charges, or refixing in two years into a market nobody can foresee, will generally cost more than a rate that moved a fifth of a point during the decision. The term is the decision; the rate is only its price. A deal ending within six months can usually be reserved now and switched if pricing improves.

The 17 September decision deserves the same treatment. Whether the MPC holds at 3.75% or not, fixes may do nothing, because the swap market has already priced in what it expects. The decision that moves trackers is not the one that moves the two-year fix.

Frequently asked questions

What is the difference between a swap rate and Bank Rate?
Bank Rate is the rate the Bank of England sets today. A swap rate is the market’s price for exchanging floating interest for fixed over a set term, so it reflects where investors expect Bank Rate to average over that term.

Why did a rise in the 10-year gilt yield affect two-year mortgage rates?
Gilt yields and swap rates price the same expectations for inflation and interest rates, so a higher-for-longer view in gilts feeds straight into the swaps lenders use to price fixes.

If lenders are still cutting, is the market really getting worse?
The cuts in the week to 1 September were agreed on earlier swap levels to win volume after weak July approvals. They describe lenders’ targets, not where funding costs are heading.

Will fixed rates fall if the Bank cuts on 17 September?
Not necessarily. If a cut is expected, the swap market has already priced it in and fixes may not move. Only trackers and variable rates follow the decision directly.

The week’s rate cuts and the week’s rise in swap rates are not a contradiction; they are a lag. Lenders are selling last month’s funding costs into a market that has moved, and the deals nearest the edge go first. Worth knowing if a fix is ending soon, but not a reason to choose the wrong term in a hurry.

The Bank of England published its Money and Credit figures for July on 1 September, and two lines in it point in opposite directions.

Lenders approved 56,053 mortgages for house purchase, the lowest monthly total since January 2024 and well short of the roughly 59,500 that economists had expected. In the same month, net consumer credit, meaning unsecured borrowing on credit cards, overdrafts and personal loans, rose by £2.006bn, ahead of the £1.8bn forecast and the biggest monthly increase since November 2025.

Fewer people committing to a mortgage. More people borrowing without security. Those are not contradictory findings; they are two symptoms of the same thing, and it is worth understanding what that is before drawing the wrong conclusion from either.

What the figures do and do not say

Approvals are a forward-looking measure. They count mortgages agreed, not completions, so they show what buyers were deciding to do in July rather than what happened in the market months earlier. A fall in approvals means fewer people chose to commit that month.

Consumer credit is a net figure, meaning new borrowing minus repayments. A £2bn net rise does not mean households borrowed exactly £2bn; it means borrowing outpaced repayment by that much. On its own, rising unsecured credit is not automatically distress. It can reflect confidence, or spending brought forward, or simply more people putting large purchases on a card for the points. But a jump in unsecured borrowing in the same month that mortgage commitments hit a two-year low is a combination that deserves a closer look.

Why the two moved in opposite directions

Three explanations are doing most of the work, and they are not mutually exclusive.

Mortgage decisions are postponable, and everyday costs are not. Buying a house is one of the few large financial commitments a household can simply defer. Groceries, energy, insurance renewals and car repairs cannot be. When budgets tighten, the mortgage decision slides to next year while the shortfall in the current month goes on a credit card. That is the mechanically simplest reading of these two numbers, and probably the largest part of it.

Inflation ticked back up. CPI rose to 2.9% in July from 2.6% in June. That is a long way from the peaks of a few years ago, but it is moving the wrong way, and it lands on households who have already spent several years absorbing higher prices. Rising prices reduce the monthly surplus that makes a mortgage feel affordable, while increasing the gap that unsecured credit fills.

Affordability, not the headline rate, is the binding constraint. Bank Rate has sat at 3.75% since December, and lenders have been trimming fixed rates. Yet approvals fell anyway. That is a reminder of something we set out in detail when looking at why the advertised rate is not the rate you get offered: the rate on the poster is not what decides whether a purchase happens. Deposit size, the lender’s stress test and existing credit commitments decide it. And that last one matters here, because unsecured borrowing feeds directly into a mortgage affordability assessment.

The trap hiding in the combination

This is the part worth acting on, and it is easy to miss.

If you are planning to buy in the next year or two, the unsecured borrowing you take on now directly reduces what a lender will let you borrow later. Monthly commitments on credit cards, car finance and personal loans are deducted from the income a lender is willing to lend against. A £250 a month car finance payment can reduce your maximum mortgage by roughly £15,000 to £20,000, depending on the lender’s method.

So the household that defers the mortgage and fills the gap with credit can end up in a worse position next year than it was this year, even if its income has risen. The deferral was rational month to month, and the cumulative effect works against the original goal.

Two practical implications follow. First, if a purchase is genuinely still the plan, treat unsecured borrowing as borrowing against your future deposit and your future loan size, not just as this month’s convenience. Second, if you have existing balances, clearing or consolidating them before applying often does more for your borrowing power than adding the same amount to the deposit would.

There is a savings-side version of the same logic. Money earmarked for a deposit in the next two or three years usually belongs somewhere accessible and capital-secure, which is why the cash side of the ISA rules matters to buyers specifically, and why the proposed £12,000 cash ISA cap is worth understanding before April 2027 if you are saving hard toward a purchase.

What one month of data is worth

Not very much on its own, and it is worth saying so plainly. Monthly lending figures are volatile, get revised, and are distorted by seasonality and one-off effects. July also sits in the middle of the summer, which is never a representative month for property.

What makes this release worth reading is not the single month but the direction of two series at once. If August and September repeat the pattern, then a genuine shift in household behaviour is underway. If they do not, July was noise. The next Money and Credit release is the thing to watch rather than this one, and the Bank’s next rate decision after that.

Frequently asked questions

Does a fall in approvals mean house prices will drop? Not necessarily, and not quickly. Approvals measure demand for purchase mortgages, and prices respond to the balance of demand and supply, which includes cash buyers and how many sellers actually list. Weaker approvals reduce upward pressure rather than guaranteeing falls.

Is rising consumer credit a sign of trouble? It can be, but the figure alone does not tell you. The same £2bn could be people financing holidays confidently or people covering bills reluctantly. Arrears and default data, published separately and with a lag, are the better distress signal.

Should I delay buying because approvals are falling? The wrong question. Other people’s decisions do not change your affordability. Whether the numbers work for you, at the deposit and rate you can actually access, and whether you intend to stay long enough to absorb transaction costs, is what decides it.

Does clearing a credit card really improve my mortgage chances? Generally yes, and by more than most people expect, because lenders deduct the monthly commitment from the income they lend against. Reducing balances also helps your credit profile, though avoid closing long-held accounts immediately before applying.

The useful takeaway from July is not that the market is weak or that households are struggling, because one month cannot establish either. It is the reminder that these two decisions are connected. The credit you take on while waiting for the right moment to buy is quietly changing what will be possible when that moment arrives.