"The collapse of Silicon Valley Bank may bring forward reductions in the base rate. This won't be immediate by any means but the peak may come sooner than expected."
Following the collapse of Silicon Valley Bank, swap rates have tumbled, with 0.4% off the money market rates since Thursday's close.
Brokers have said this may benefit borrowers as rates could come down sooner than expected, and the Bank of England may even hold rates in this month's meeting as it assesses the fallout.
David Conway, director at Clayhall Financial Services: "The reaction in the market to Silicon Valley Bank's collapse has seen swap rates nosedive, with 0.4% off the money market rates since Thursday's close. This could prolong the sub-4% market rates and maybe even trigger a reduction in the base rate sooner than expected. It seems lessons from the past about investment risks and behaviour have not been learned, and since contagion is unpredictable and spreads quickly, we will have to see what the next few days and weeks bring."
Rhys Schofield, managing director at Peak Mortgages and Protection: "In the case of Silicon Valley Bank, bad news is good news for mortgage customers. Over the past week or two, we've seen mortgage rates creep up as it was felt the UK economy is doing better than expected, meaning that it was more likely the Bank of England would hike rates. Now that it looks like they perhaps won't have the room to do that, I'd expect to see the upward pressure on mortgage rates ease off a bit."
Graham Cox, director at SelfEmployedMortgageHub.com: "Silicon Valley Bank going bust is likely to have focused the minds of the world's central bankers on the dangers of pushing interest rates too high, too fast. The markets certainly seem to think so, with swap rates falling in the immediate aftermath. That's good news for mortgage rates, as the recent increases may now be reversed over the coming weeks. Despite the soothing words from political leaders, fear about major bank exposure to bond price falls is continuing to drive market sentiment. Are we on the brink of a second Global Financial Crisis? I suspect not, but it could mean an emergency brake is applied to interest rate hikes."
Justin Moy, managing director at EHF Mortgages: "The collapse of Silicon Valley Bank may bring forward reductions in the base rate. This won't be immediate by any means but the peak may come sooner than expected. The overnight swap rates showed a significant decline in light of Silicon Valley Bank's collapse, enough for everyone to take notice, especially when the recent trend has been upward for a few weeks. Is this just a bounce for a few days, or have the markets had a little nudge in the ribs? Let's see what happens for the remainder of the week. It could be significant."
Craig Fish, director at Lodestone Mortgages & Protection: "The collapse of SVB has taken everyone by surprise, not least the banking sector. As a result, overnight we have seen SWAP rates drop to levels last seen in early Feb when lenders were starting to reduce their rates. I think, though, that caution is going to be the key word here, and the mortgage sector along with the Monetary Policy Committee will need to take stock of what this all means before making any rash decisions on interest rates. It's likely to be a very interesting few weeks ahead of us."
Jamie Lennox, director at Dimora Mortgages: "The failure of SVB has triggered a series of events, which will eventually trickle down to impact the UK economy. In recent weeks, the US Federal Reserve has come out and openly said they may need to increase rates higher than originally thought and keep them there for longer. This was the nail in the coffin for SVB due to them holding a large number of government bonds, which are negatively impacted when interest rates rise quickly. SVB's failure is rippling around the world and creating fear that other banks may go the same way. The US Fed may now need to rethink if they plan to increase rates, which then takes the pressure off the Bank of England having to follow suit. With a larger increase in the base rate now looking less likely, the markets are repricing accordingly to factor in the changing climate."
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services: "Financial markets tend to react badly to surprises and have a tendency to over-react, too. The collapse of Silicon Valley Bank in itself is not a major issue for UK markets as a whole, but the fear of a repeat of 2008/2009 is what's setting the background music to all this. Is SVB a one-off, or the first domino to fall? The good news for the UK is that our banking sector is in a far more robust place than it was in 2008/2009 so the fear of UK banking collapses is far less than it is in the US. Chances are that markets will stabilise in the coming days and swaps return to around their pre-SVB levels. But as the saying goes, when the US sneezes..."
