Trump trade tariffs: UK mortgage rates fall in 'silver lining' for borrowers

Donald Trump’s “Liberation Day” tariffs may have spooked global stock markets but there is a silver lining for mortgage borrowers.

The turmoil from the tariff policy has raised expectations that UK interest rates could be cut further this year, and some mortgage lenders have already started reducing their rates.

TSB said it will cut some two-year fixed-rate mortgages by up to 0.25 percentage points, while Clydesdale Bank is trimming selected deals by up to 0.64 points.

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Other lenders like Skipton Building Society, MPowered Mortgages and Gen H have also cut some of their mortgage rates.

The cheaper mortgage deals comes as stock markets suffer their biggest drops since the pandemic as the impact of new US trade tariffs are digested.

The FTSE 100 fell 10% while the S&P 500 was down 9.1% last week as the higher costs raised fears of rising inflation and even a recession.

But while investors may be getting nervous, swap rates - a major factor in the pricing of mortgages - have dropped since last week.

Laith Khalaf, head of investment analysis at AJ Bell, commented: “Trump’s tariff announcement might have created havoc in the stock market, but there could be a silver lining for UK mortgage borrowers. Interest rate expectations are falling as markets price in the potential economic damage from US tariffs.

“The market had been pricing in two interest rate cuts this year, but in short order that has now been ratcheted up to three, which would take the base rate to 3.75% by the end of 2025."

We look at what's happening in the mortgage market, and whether rates will continue to drop this year.

What is happening with mortgage rates?

Mortgage rates had already fallen in recent weeks off the back of the Bank of England’s interest rate cut in February.

The average two-year fixed-rate mortgage is currently at 5.3%, according to Moneyfacts, while the average five-year deal is priced at 5.15%.

That compares with 5.52% and 5.32% respectively at the start of February.

Meanwhile, five-year SONIA swaps in the UK are now at 3.6%, compared with 3.9% at the start of March.

Rachel Springall, finance expert at Moneyfacts, told MoneyWeek that mortgage rates are expected to come down in the coming weeks as swap rates have been on a downward trend.

“Lenders use swap rates to determine where they should price their range, so when these fall due to other market influences, it could spell good news to the millions of borrowers due to refinance this year.”

Riz Malik, independent financial adviser at R3 Wealth, said Trump's latest moves may have unintentionally created a short-term opportunity for UK borrowers, particularly if the global fallout deepens.

He added: “With China already retaliating and others likely to follow, the ripple effect could drive swap rates down a lot more and bring a wave of sharper mortgage pricing. This week could be one of the best weeks in years on the mortgage front."

According to Andrew Montlake, managing director at the mortgage broker Coreco, given the sharp drop in swap rates, "some might be surprised that lenders haven’t acted sooner".

However, he added that lenders have likely been waiting to see if the market uncertainty calms. "If one of the big six lenders comes out with some sizeable cuts, then we could see a mini rate war break out. That said, we still do not expect massive drops given the volatile market and the potential for a sudden change of direction from the White House."

Which mortgage lenders have cut their rates?

TSB is reducing some of its rates today (9 April). Its two-year fixed deal for first-time buyers and home movers with a 75-85% loan-to-value (LTV) will drop by 0.25 points.

Meanwhile some of its product transfer and additional borrowing rates will fall by 0.05 points.

Clydesdale Bank is also cutting some of its deals today. For example, its residential 85%-95% two and five year core rates will be reduced by up to 0.64 points. And its 85%-90% two year professional rates will fall by up to 0.2 points.

According to Springall at Moneyfacts, Skipton Building Society reduced rates by up to 0.29 points and Bank of Ireland UK by up to 0.19 points on 7 April.

Other lenders like MPowered Mortgages, Gen H and Pepper have also made cuts to their mortgage rates over the past few days.

How low could mortgage rates go?

Montlake at Coreco thinks we could see "mortgage rates starting with a three once more".

He added: “Much depends on the length of time Trump holds his current position, and the erratic nature of decisions coming from Washington mean that the market will remain in a capricious state. Lenders may therefore be reluctant to move too quickly and adopt a wait and see approach.

“I expect we will see lenders cutting rates and the Bank of England reducing in May, but how long this all lasts remains to be seen”.

The Bank of England's Monetary Policy Committee's next interest rate meeting will take place on 8 May.

Springall noted: “At this stage it is hard to tell whether lenders will make any signification knee-jerk reactions to rate pricing, as we may instead just see a small flow of tweaks as lenders compete for business over the coming days.

“It traditionally takes a couple of weeks for lenders to respond to swap market volatility, but usually once a notable brand moves to cut mortgage rates, others follow suit. There are a couple of lenders already offering sub-4% mortgages today, but the pool of these could widen if swap rates continue to drop from their current levels.”

According to Imran Hussain, director at Harmony Financial Services, now could be a good time to remortgage or secure a mortgage deal if you're looking to buy a house.

"Amid all the chaos in the markets, the weeks ahead could be a perfect time for those who are looking to purchase a property or those whose fixed rates are coming up for renewal within the next six months. People should speak to their brokers ASAP, as this could shape up to be a fast-moving market."

However, homeowners and first-time buyers should note that any reduction in mortgage rates could be outweighed by household bills like council tax, water bills and energy bills going up this month.

Montlake added: “Whilst these rate cuts may be a blessing for many with a mortgage or looking to buy, it reflects the expectation of a weaker economy and less growth due to the trade wars, which could result in a much weaker jobs market and certain companies laying off workers, which will be of concern."