Trump, Tariffs and What He Might Mean for Your Mortgage
Some people suggest that Donald Trump’s tough tariff policies could decrease UK mortgage rates. Here, we’ll examine whether there could be any truth in that and what experts think.
What affects your mortgage rate?
Mortgage rates in the UK are set by mortgage lenders, in step with the interest rate or bank base rate set by the Bank of England.
Many factors are behind these rates. They include the pricing of government bonds – basically loans to the government, and swap rates – what banks charge each other for lending.
The state of the economy and inflation are other influencing factors. When the economy struggles, the Bank of England might cut the interest rate to get things going again. When inflation rises, they might raise the rate to keep it in check.
The link between Trump’s tariffs and UK mortgage rates
Trump’s so-called ‘liberation day’ tariffs, which imposed huge extra taxes on imports into the USA – and tit-for-tat action by countries around the world – have created a volatile situation.
Business and investor confidence was hit, and global stock markets plunged.
Although things have calmed slightly since – notably as Trump announced some watering-down of his tariff plans – the situation is still very uncertain.
As the saying goes, when America sneezes the world catches a cold. So, potentially, economic problems in the USA could affect the UK.
Concerns about the economic situation could put consumers off spending and companies off investing. The Bank of England might act to stimulate the economy by cutting interest rates.
That could see mortgage rates fall and make owning a home (or investing in property) cheaper.
What experts think
Lucian Cook, Head of Residential Research at Savills, says: “While the impetus for central banks to cut interest rates further and faster might not be the same as it was 48 hours ago, it is still more than it was 48 days ago.
“So we continue to expect interest rates to fall over the summer and mortgage markets to become more competitive. That should mean an easing in underlying affordability, gradually bringing more buyers into the market and underpinning prices over the medium term.”
Laith Khalaf, Head of Investment Analysis at investment platform AJ Bell, says: “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.
“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.
“We may, therefore, see falling interest rates feeding into mortgage pricing before too long.”
Jason Hollands, Managing Director at wealth management firm Evelyn Partners, agrees there is downward pressure on rates but cautions: “The Bank of England will face a dilemma. On the one hand, tariffs are going to lift the prices of some goods [if the UK chooses to reciprocate], and its core remit is to keep a lid on inflation, as close to 2% as possible, which would point to rates staying higher for longer than previously expected.”
The next interest rate decision by the Bank of England is on 8 May, so watch this space.
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This article is only a general guide and does not constitute financial advice.