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Rising swap rates are set to dampen down mortgage market activity – putting the breaks on a positive start to 2024.

The five-year swap rate – the instrument used to price fixed mortgages of the same length – topped 4.3%, which compares to less than 3.6% in the period between Christmas and the New Year.

Underlying inflation has remained relatively high, which has pushed swaps and therefore mortgage rates up.

The bank rate is likely to stay at 5.25% at the next two meetings of the Bank’s Monetary Policy Committee (MPC) on 21 March and 9 May.

Central bankers are currently struggling to keep the UK inflation rate down, while also preventing the UK from falling into a deeper recession.

Simon Gammon, head of Knight Frank Finance, said: “It’s a frustrating period for mortgage lenders.

“They are keen to build their mortgage books but are feeling hamstrung by what is happening in the swap market.

“Their margins are already thin, which means they have to respond quickly when rates rise.”

Goldman Sachs tempered its outlook last week when it said it expected a cut in June rather than May due to the resilience of the labour market.

Despite the negativity, Knight Frank expects transactions and prices to rise this year.

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