Cheaper mortgages could be a ‘silver lining’ in fallout from Trump tariffs

Cheaper mortgages could be coming to the market in the aftermath of US tariffs, in a “silver lining” for borrowers amid a period of severe turmoil in the financial markets.

Experts said expectations that interest rates will fall have risen since Donald Trump’s tariffs announcement last Wednesday.

Laith Khalaf, head of investment analysis for AJ Bell, said: “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, and the likelihood the Bank of England will respond with interest rate cuts.”

He said traders in the financial markets were now “fully pricing in” a cut to UK interest rates when policymakers next meet, in May.

Mr Trump’s tariff plans have sparked significant turbulence in the financial markets since they were announced last week, and China responded by imposing a “reciprocal” tariff on the US.

Fears over a global trade war, a downturn in the world economy, and the growing threat of a looming recession in the US helped drive sharp losses for some of the world’s biggest stock markets including in the US, Europe, and Asia.

Oil prices have also been dropping in the aftermath, which experts said could help bring down UK inflation.

On the other hand, foreign exchange rate movements and supply chain disruption could push up prices, which would add to inflation and could make further interest rate cuts less likely, economists cautioned.

A group of analysts for Investec said a lack of retaliatory measures from the UK, so far, and efforts to the negotiate a trade deal would “make it easier for the MPC (Monetary Policy Committee) to cut rates, in contrast to the difficult crosscurrents” facing the US’s Federal Reserve.

They added: “Indeed, markets are now pricing in between three and four extra 0.25 percentage points UK rate cuts by the end of this year; on April 1 only around two cuts had been priced in.”

Martin Temple, an economist at Leeds Building Society, said the tariff announcements “may seem a world away from decisions consumers might want to make on taking out a new mortgage deal or considering which savings products to choose”, but that the market reaction suggests the Bank of England will be more likely to cut rates next month.

“With sharp falls seen across Asian, European and US stock markets, underlying interest rates used to price both mortgage and saving products in the UK have fallen steeply,” he said.

For example, the two-year interest rate swap – which is used as a basis to price mortgages – had fallen to 3.66% at the beginning of this week, 0.37 percentage points lower than before last Wednesday, according to the building society.

“For mortgage customers, this fall is potentially welcome news, as we would expect these lower swap rates to start to feed through into lower mortgage pricing over the next couple of weeks – especially if these falls are sustained,” Mr Temple said.

However, he said savings rates on fixed products could also start to reduce as a result of the movements.