Chelsea Building Society is set to enter a fixed-to-floating interest rate swap. The trade will convert the fixed rates it receives on mortgages into LIBOR. In the five-year, GBP5 million deal, Chelsea Building Society will pay 4.6 per cent and receive three-month LIBOR flat from the National Australia Bank. The swap will kick in June 30.
James Rushton, treasurer at Chelsea Building Society in Cheltenham, said the firm is able to part hedge its fixed-rate mortgages, which range in maturity from two to five years, with various fixed-rate savings products, but these only have a maximum maturity of two years. The swap will plug the gap in the maturity of the mortgages because they can't be paired off properly with the shorter-dated savings products, Rushton explained.
The firm has International Swaps And Derivatives Association documentation arrangements in place with 15 different firms, including Barclays Capital and Deutsche Bank. Rushton said the price of entering swaps can vary significantly between firms and is a large factor when choosing dealers. "It depends on a bank's appetite, but rates can differ between two and three basis points," he noted.
