Mortgage lenders have begun cutting rates after financial traders increased their bets for the number of interest rate drops this year following Donald Trump’s tariff plan.
TSB is among the multiple lenders that have announced cuts at the start of this week.
The bank will drop rates by up to 0.25 percentage points from Wednesday (9 April), while MPowered mortgages has already cut rates by 0.21 percentage points.
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Smaller lenders Gen H and Pepper have announced cuts of up to 0.2 and 0.4 percentage points, respectively.
Clydesdale Bank is also reducing rates by up to 0.64 percentage points on some deals, but is also upping some other rates by up to 0.19 percentage points.
Last week, mortgage experts predicted that banks would start to cut their rates, following the fallout from President Trump’s Rose Garden press conference in which he announced that the US would apply import taxes on products coming into the country from around the world.
The Bank of England is now predicted to cut rate interest rates three times in 2025, and is expected to drop the base rate by 0.25 basis points when its Monetary Policy Committee next meets in May.
The predictions mean swap rates, used by mortgage lenders to determine the price of their fixed mortgages, have fallen.
Now, this is feeding through to the cost of new home loans.
None of the reduced rates will overtake the cheapest on the market, but reductions from lenders also often prompt other lenders to do the same.
But experts say big banks may be biding their time before making further decisions.
“Looking at where swaps have gone, you’d assume the big six lenders would be jumping in with rate cuts. However, I suspect, due to the volatility in global markets, they’re biding their time until there’s more clarity on how the Trump trade war plays out,” said Lewis Shaw of Shaw Financial Services.
Nick Mendes of John Charcol brokers added: “The financial markets have reacted swiftly to the tariffs.
“In the UK, the impact has been particularly pronounced on swap rates. For example, the two-year swap rate dropped from 4.38 per cent to 3.79 per cent in just a few days, and similar movements were seen in gilt yields. These are critical benchmarks for mortgage pricing.”
“There is a strong chance that rates will remain subdued in the near to medium term. The market is now pricing in up to three rate cuts this year, which would bring the base rate down to 3.75 per cent by year-end.”
Although mortgage rates are dropping, which is usually positive news for households, the backdrop to why it is happening is in this case gloomy.
The Bank of England usually drops interest rates when inflation is falling, but it can also do so when it thinks the economy is struggling.
Higher interest rates weigh down further on the economy because – among other things – it makes borrowing for businesses and individuals more expensive, which means they are even less likely to spend cash.
In this case, the expectation of rate cuts is because financial markets expect that they will need to be reduced to stave off low growth and the negative impact this can have on jobs and consumer’s pockets.
So while mortgage rates dropping is a silver lining to what is being seen in the US, it’s hard to see them as good news in isolation, given the context that has caused them.
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