The financial market disruption following the imposition of tariffs last week could lead to lower mortgage pricing as a further base rate cut seems more likely, experts say.
Last week, President Donald Trump declared a raft of tariffs against several countries by executive order, with the UK among those receiving a 10% baseline tariff on all exports to the US. There is also a 25% global tariff on cars.
The tariffs were set to come into effect on 5 April, with some higher duties applied to other countries slated for 9 April.
There was uncertainty last week as to what this would mean for mortgage pricing, with some speculating the tariffs would either cause the Bank of England to cut the base rate at a faster-than-expected pace to combat the negative impact on businesses or could lead to a base rate hold to negate inflationary pressures.
The base rate influences swap rates, which dictate mortgage pricing.
Leeds Building Society’s in-house economist, Martin Temple, said: “The recent tariffs announced by the US government on UK exports 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, however, the market reaction seen over the last couple of days suggests the Bank of England may be even more likely to reduce the base rate by another 0.25% to 4.25% when they next meet on 8 May.
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“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.”
Temple added that the two-year interest rate swap was at 3.66% at the start of trading on 7 April, which is 37 basis points down compared to where they were before the tariffs were announced.
“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,” he added.
The latest Moneyfacts figures indicate the average two-year fixed residential mortgage rate today is 5.32%. This is down from 5.33% the previous working day.
The average five-year fixed residential mortgage rate today is 5.17%. This is a drop from 5.18% from the prior working day.
There are currently 6,945 residential mortgage products available. This is up from 6,936 the previous working day.
Laith Khalaf, head of investment analysis at AJ Bell, agreed that while Trump’s announcement has created stock market havoc there could be a “silver lining for UK mortgage borrowers”.
He explained: “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.
“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 (based on LSEG data). Meanwhile, the two-year swap rate fell from 4% on 1 April to 3.7% at the end of last week, according to Bank of England data.
“The two-year gilt yield has also fallen, from 4.2% to 3.9% since 1 April (source: LSEG). We may therefore see falling interest rates feeding into mortgage pricing before too long. Likewise, the cash market may see fixed rates fading to reflect the new outlook for interest rates,” he noted.
Khalaf added there was still a “high degree of uncertainty around whether current market dynamics will be sustained”, partially as Trump has shown “some flexibility around tariffs in the short time he’s been in office and will likely be getting calls from wealthy backers who have seen billions of dollars wiped off their wealth in the last few days”.
“He may well stay the course, but then again, if he adjusted his trade policy in the face of plummeting stock markets, it wouldn’t come as a total surprise,” he noted.
Sarah Coles, head of personal finance, Hargreaves Lansdown, agreed that the money markets expect interest rates in the UK to fall faster than they’d previously predicted, as “worries about growth eclipse inflation concerns”.
“It means swap rates have dropped, which should feed through into lower fixed rate mortgages in the coming days. These have already edged down since the start of 2025 and are likely to continue to do so,” it said.
Lower growth will make like ‘increasingly painful’
However, Coles said that further down the line, “lower growth is going to start making life increasingly painful”.
She explained: “There’s the threat to jobs, if businesses are concerned about their overheads and put the brakes on investment. Anyone working in the car industry will be hoping some kind of deal could be thrashed out to help protect them from the impact of punishing 25% tariffs. There’s clearly valuable support in the pipeline from the government, but we will need to wait to see exactly what’s on offer and the difference it can make.
“If your job isn’t under threat, your finances could be. The government is relying on growth to make its sums add up. It needs a healthy economy to bring in enough tax revenue to stay within its tax rules.
“There are plans in place for an industrial strategy, but it’s unclear whether it will be enough to ensure robust economic growth. If we don’t get this growth – and if the economy starts shrinking, it could open up a new black hole in the finances. It would then mean either borrowing more and breaking the rules, spending less, or raising taxes,” Coles explained.
Coles said Labour’s election pledges had “painted Labour into a bit of a corner” as it promised not to raise any of the big three revenue raisers: income tax, national insurance or VAT.
“The government could use this as an opportunity to revisit those election pledges. If the party sticks with them, it’s going to need to make a myriad of changes to other taxes – and even consider a new kind of tax – to try to close the gap,” she said.
Khalaf said: “As things stand tariffs are likely to knock the Office of Budget Responsibility (OBR) and Bank of England’s economic growth forecasts off course. That may wipe out the fiscal headroom for the chancellor, but it’s not a done deal because lower interest rates would bolster the Exchequer’s coffers.
“It’s also a very, very long way until October when we might expect the next fiscal event, by which point the global economic picture could be very different. It’s, therefore, way too early to speculate on what money the chancellor may or may not have to conjure up to balance the books at the next Budget.”