How will the tariff turmoil affect your mortgage?
The fallout from President Donald Trump’s decision to impose wide-ranging tariffs on the world has left no stock market unscathed, but it’s possible Brits’ mortgages will benefit from the upset.
The decision, which placed a minimum tariff of 10 per cent on all countries (including the UK), and higher tariffs on many more, has increased the threat of a global recession.
One of the few silver linings of a looming recession is that the Bank of England will be encouraged to cut interest rates “further and faster than previously thought”, Jonathan Hopper, CEO of Garrington Property Finders, said.
“The Bank of England is likely to cut the base rate up to three times this year, cheaper mortgages will allow buyers to afford more and support average prices,” he added.
Mortgage rates are directly connected to interest rates through swap rates.
A swap rate is a rate based on what the markets think interest rates will be in the future, and a higher swap rates in general means that a higher fixed mortgage rate.
The UK’s 10-year swap rate fell two per cent on April 7, and analyst expect it to fall further.
“A significant margin has opened up between swaps and mortgage rates – if this continues, lenders could respond with a flurry of five-year fixed rates starting with a ‘three’ as opposed to the current position of only one or two priced under four per cent,” Mark Harris, chief executive of mortgage broker SPF Private Clients, said.
“This would help affordability and give buyers renewed confidence to make their move,” he added.
However, director at SJ Mortgages, Jack Tutton, warned that the effect would not be immediate.
“Lenders are quick to act when markets are increasing but the complete opposite when lending rates are improving.
“They 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,” Tutton said.