When you hear about mortgage rates in the news, the Bank of England base rate usually grabs the headlines. But here’s the truth: SONIA swap rates are just as important — especially for fixed-rate mortgages.
In this guide, we’ll explain in plain English:
- What SONIA swap rates are
- How they differ from the base rate
- Why they matter for fixed vs tracker mortgages
- What you should watch if you’re planning a remortgage or new deal
What Are SONIA Swap Rates?
SONIA stands for the Sterling Overnight Index Average. It’s a daily measure of the cost of short-term borrowing between banks in sterling.
A swap is a financial agreement lenders use to “lock in” that cost over a period — 2, 5, or 10 years. That’s why you’ll often hear about:
- 2-year SONIA swaps → linked to 2-year fixed mortgage deals
- 5-year SONIA swaps → linked to 5-year fixes
- 10-year SONIA swaps → linked to longer-term fixes
SONIA Swap Rates vs Bank of England Base Rate
Base rate: Set by the Bank of England. Directly affects tracker mortgages (base + margin).
SONIA swaps: Reflect market expectations of future rates and inflation. Drive fixed mortgage pricing.
This is why fixed mortgage rates can go up or down even when the base rate doesn’t move.
Why Fixed Mortgage Rates Change Daily
SONIA swap rates move with financial markets. If investors believe rates will stay high for longer, swaps rise — and so do fixed mortgage costs. If markets expect cuts, swaps fall — and fixed mortgage rates often follow.
What Goes Into a Lender’s Price?
A mortgage rate is built from:
- SONIA swap rate (the core wholesale cost for fixed deals)
- Bank funding costs
- Risk margin (credit profile, LTV, property type)
- Operational costs
- Competition & strategy
That’s why lenders don’t always move in sync — even if swaps rise or fall.
Fixed vs Tracker Mortgages
Tracker mortgages follow the BoE base rate + margin
Fixed mortgages follow SONIA swap rates for the relevant term
If you want certainty, a fix may suit. If you want flexibility, a tracker could work — but it’s riskier.
Case Studies
1) Mark & Emma – Fixed Before Swaps Jumped
We saw 5-year SONIA swaps rising mid-week. Mark & Emma secured a 5-year fix on Tuesday. By Friday, similar products had gone up 0.25%. Acting early saved them thousands.
2) Rachel – Tracker While Waiting
Rachel expects to move in 18 months. We advised a no-ERC tracker tied to the base rate. This gave her flexibility and lower payments than a fix, while keeping options open.
3) James – Remortgage With Swap Dip
James’ mortgage ended in 4 months. We tracked 2-year SONIA swaps and locked in during a dip. When rates rose again, he was already secured at the lower cost.
Frequently Asked Questions
1) Do mortgage rates only follow the Bank of England base rate?
No — fixed mortgage rates are mainly influenced by SONIA swap rates.
2) Why do fixed mortgage rates change even when base rate doesn’t?
Because swap rates reflect future expectations, not just today’s base rate.
3) What should I watch — base rate or SONIA swaps?
Both. Trackers = base rate. Fixes = swaps.
4) Do swaps predict mortgage rate cuts?
They give a market view of expectations, but lenders still add margins.
5) How can I protect myself from swap volatility?
Consider early applications, rate locks, or products with free switches before completion.
Ready to fix at the right time?
At Mortgage Knight, we track SONIA swaps and lender pricing daily. That means we know when to move fast — and when to wait.
