Because of Trump's trade tariffs, UK mortgage rates are expected to drop, which is good news for borrowers

Trump's trade restrictions have shook stock markets, but mortgage borrowers may benefit

Global stock markets may have been rattled by Donald Trump's "Liberation Day" tariffs, but mortgage borrowers may benefit.

As people process the effects of the new US trade tariffs, stock markets have experienced their largest declines since the pandemic.

Because of the increased costs, there were concerns about rising inflation and even a recession, which caused the FTSE 100 to drop 10% and the SandP 500 to drop 9 points last week.

However, borrowers might benefit from lower mortgage rates even though investors might be growing uneasy.

Since last week, swap ratesa key component of mortgage pricinghave decreased.

This implies that mortgages may actually get cheaper even as inflation rises as a result of higher tariffs.

How are the rates for mortgages?

Following the Bank of England's interest rate cut in February, mortgage rates had already decreased in recent weeks.

According to Moneyfacts, the average fixed rate mortgage for two years is currently at 5.32 percent, while the average for five years is at 5.18 percent.

This is in contrast to 5point 52 percent and 5point 32 percent at the beginning of February, respectively.

However, given that swap rates have already fallen in reaction to the economic uncertainty, there may be additional downward pressure in the weeks ahead.

Since the beginning of March, five-year SONIA swaps in the UK have been trading at 3point 6 percent, down from 3point 9 percent.

Although there hasn't been a rush of mortgage rate reductions yet, Rachel Springall, a finance expert at Moneyfacts, stated that this morning (7 April), Skipton Building Society and Bank of Ireland UK both lowered rates by up to 0.29 and 0.19 percent, respectively.

"Swift rates have been declining, so it is anticipated that mortgage rates will decrease in the upcoming weeks," she told BFIA.

"Swift rates are used by lenders to set their range prices, so when they decline as a result of other market factors, it may be good news for the millions of borrowers who are scheduled to refinance this year. The actual effect on any consumer, however, depends on their unique situation, such as financial drag.

Lenders are always quick to act when markets are rising, but the opposite is true when lending rates are improving, according to Jack Tutton, director of SJ Mortgages.

"Lenders will want to see that the situation improves over time and that it's not just a reaction to Trump's tariffs," he stated.

In a month where everyone's bills have gone up, mortgage holders hope that the rate reductions will continue at least temporarily. This will enable mortgage lenders to begin lowering their rates, which will be greatly appreciated.

According to R3 Wealth's independent financial adviser Riz Malik, Trump's recent actions might have inadvertently created a short-term opportunity for UK borrowers, especially if the fallout worsens globally.

"With China already retaliating and others probably following suit, the ripple effect could drive swap rates down much more and bring a wave of sharper mortgage pricing," he continued. On the mortgage front, this week may be among the best in years.

What is the lowest possible mortgage rate?

According to Andrew Montlake, CEO of Coreco mortgage brokers, swap rates have decreased generally since last week, which may allow lenders to re-pricing their mortgage products at a lower cost.

As a result, we might see mortgage rates begin with a three again," he stated.

The market will continue to be volatile due to the unpredictable nature of Washington's decisions and the length of time Trump stays in his current role. As a result, lenders might be hesitant to act hastily and instead take a wait-and-see strategy.

"It is unclear how long this will continue, but I anticipate that lenders will lower rates and the Bank of England will do the same in May."

According to Springall, it is difficult to predict at this point whether lenders will react significantly to rate pricing at this point. Instead, we might just witness a minor stream of adjustments as lenders vie for clients in the days ahead.

"Lenders typically react to swap market volatility over a period of a few weeks, but once a well-known brand lowers mortgage rates, others typically follow suit. A few lenders currently provide mortgages with interest rates below 4 percent, but if swap rates continue to decline from their current levels, the number of these available mortgages may increase.

But according to Mike Staton, director of Staton Mortgages, lenders might be wary of reductions.

"Being a mortgage adviser during this time has been like throwing ten rounds at Mike Tyson in his prime, and most brokers feel battered and bruised after the fight," he said.

All of us have been severely impacted by COVID, the fuel crisis, the cost of living crisis, the energy crisis, and the conflict between Russia and Ukraine. Donald Trump appears to be attempting to put an end to the latter, which could lead to the outbreak of another world war. Despite the fact that this is an economic conflict rather than an armed conflict, I believe that lenders will be hesitant to set significantly lower fixed rates just yet.

Furthermore, because taxes and household expenses are also going up this month, the advantages of lower mortgage rates might be outweighed by increased expenses.

"While these rate cuts may be a boon to many who have mortgages or are looking to buy, they reflect 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," Montlake continued.