How US Tariffs Could Impact UK Mortgage Rates

US President Donald Trump has created a butterfly effect with a series of tariffs on foreign imports, with a 10% blanket tariff and a 145% tariff on Chinese goods. The National Renewal Strategy aims to revive US manufacturing and reduce reliance on foreign imports. Still, the tariffs are already having a global impact, and they’re even affecting UK mortgage rates.

While we might have expected a knee-jerk reaction and a rate increase by the British banks, that hasn’t happened. Instead, the banks and mortgage lenders have slashed the cost of fixed-rate mortgages and created a window of opportunity for British homeowners and home buyers to get a valuation and negotiate new long-term deals. But it might not last long.

Why Are Fixed Rate Mortgages Getting Cheaper?

Fixed-rate mortgages are tied to swap rates, which are the interest rates the banks pay on fixed-term loans. After Trump’s tariff announcement, the two-year swap rate fell from 4.68% to 4.40%, and the five-year UK swap rate fell to 3.87% from 4.04%.

Simply put, this is a result of global investors pulling their money out of harm’s way, which has dragged swap rates down. The banks have passed some of the savings on to the consumer.

Moneyfacts revealed that Barclays dropped its 5-year fixed mortgage to 3.99%, down from 4.25%, for buyers with a 40% deposit. HSBC has revised its 10-year fixed deal down to 4.04% from 4.45%, and TSB, Coventry Building Society, and other lenders have slashed their fixed-rate mortgage offers by as much as 0.40%.

Moneyfacts also revealed that the average interest rate for a five-year fixed-rate mortgage fell from 5.39% in March to 5.25% this month. That’s the largest month-on-month decline in more than a year.

While the Bank of England was expected to cut the base rate twice this year, financial experts and analysts are now largely predicting more aggressive cuts to boost growth.

Don’t Celebrate Just Yet

This all looks like good news, but the ripple effect on the international markets has given serious cause for concern.

First, the S&P 500 slumped by almost 10% following the announcement on April 3rd, and it was the worst week for the Stock Market since the COVID-19 pandemic struck in 2020. The Dow Jones Industrial Average fell 3.98% on a single day, the fifth biggest loss in its history. Japan’s Nikkei Index fell by 2.8%, and Germany’s DAX Index decreased by 3.1%.

The Chinese Yuan fell to its lowest level for four months, and even Apple’s stock fell by 11%. Crude oil prices fell by 3.7%, too, which is often a sign of impending global instability.

Both the National Institute of Economic and Social Research (NIESR) and the Centre of Economic Business and Research (CEBR) have predicted that Trump’s tariffs could reduce the UK GDP growth by as much as 50% over the next 18 months. Both have predicted that inflation could rise by 3-4%, decimating business investment and forcing the banks to raise mortgage rates dramatically.

The British Pound is already feeling the effects, dropping from $1.285 to $1.265 since the tariffs were announced. This will make imported goods more expensive, which has traditionally been a driver of inflation.

What is the Best Move for Homeowners and Buyers?

All the signs suggest that the current dip in mortgage rates is a brief opportunity for homeowners and would-be buyers to seize the moment and lock in a long-term fixed-rate mortgage at the best possible rate before interest rates catch up with tariffs. If you’re interested in a new mortgage or refinancing your current rates, here’s a mortgage guide to make the process a lot easier.

Fixed-rate deals could drop further, with some analysts predicting that swap rates could fall by another 0.2% and others predicting a price war between mortgage lenders. The Bank of England base rate cuts could also have a profound impact on mortgage payments, and mortgages could get cheaper still. But if inflation kicks in with a vengeance, this can change in a hurry. There’s a definite casino feel to the mortgage market right now and it’s all about holding your nerve and picking the right time.

For homeowners who already have a fixed-term deal, it’s worth checking the fine print on the terms and conditions to see if they can pay an Early Repayment Charge and negotiate a new long-term deal while the rates are low. Then it’s simple a case of picking the right moment.