Donald Trump’s “Liberation Day” tariffs may have spooked global stock markets but there could actually be a silver lining for mortgage borrowers.
Stock markets have suffered their biggest drops since the pandemic as the impact of new US trade tariffs are digested.
The FTSE 100 has fallen 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.
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But while investors may be getting nervous, borrowers could see some benefits from lower mortgage rates.
Swap rates, a major factor in the pricing of mortgages, have dropped since last week.
This means that even as inflation may rise in response to higher tariffs, mortgages could actually become cheaper.
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 5.32%, according to Moneyfacts and is at 5.18% for a five-year deal.
That compares with 5.52% and 5.32% respectively at the start of February.
But there could be more downward pressure in the coming weeks after swap rates have dropped in response to the economic uncertainty.
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, said there hasn’t been a flurry of mortgage rate cuts yet, although Skipton Building Society reduced rates by up to 0.29% and Bank of Ireland UK by up to 0.19% this morning (7 April).
She told MoneyWeek: “Mortgage rates are expected to come down in the coming weeks as swap rates have been on the 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. However, the true impact to any consumer is down to their own individual circumstances, such as with fiscal drag.”
Jack Tutton, director at SJ Mortgages, said lenders are always quick to act when markets are increasing but the complete opposite when lending rates are improving.
He said: “Lenders will want to see the conditions improving for a period of time and that it’s not just a knee-jerk reaction to Trump’s tariffs.
“The hope among mortgage holders will be that the level of reductions continues at least in the shorter term; this will allow mortgage lenders to start reducing the rates that they offer, which will be welcomed in a month where everyone’s bills have been increased.”
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.”
How low could mortgage rates go?
Andrew Montlake, chief executive of Coreco mortgage brokers, said swap rates have fallen across the board since last week, which could mean that lenders will be able to reprice their mortgage products cheaper once more.
He said: “As a result, we could well see mortgage rates starting with a three once more.
“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”.
Springall added: “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.”
However, Mike Staton, director at Staton Mortgages, said lenders may be cautious about cuts.
He said: “Being a mortgage adviser during this period has been like going 10 rounds with Mike Tyson in his prime and most brokers feel battered and bruised after the fight.
“Covid, a fuel crisis, the cost of living crisis, energy crisis and the Russia/Ukraine war has completely taken its toll on all of us and, with Donald Trump seemingly trying to end the latter, he looks like he is starting another Global War. Even though it’s an economic war and not an arms war, I think lenders will be wary of setting much reduced fixed rates just yet.”
Additionally, with household bills and taxes also rising this month, higher costs may outweigh any benefits of lower mortgage rates.
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 holding future recruitment plans or laying off workers which will be of concern.”
