Mortgage rates look set to fall over the coming weeks, according to a key metric, following Donald Trump’s tariff announcements. These announcements have led to predictions of faster interest rate cuts by the Bank of England.
In response to Trump’s tariff measures, markets are now forecasting three further interest rate cuts this year. This marks a shift from previous expectations, with the general consensus now predicting that interest rates will fall to 3.75 per cent by the end of 2025, instead of the previously forecasted 4 per cent.
The pricing of fixed-rate mortgages is largely influenced by Sonia swap rates. These are inter-bank lending rates that reflect where banks expect mortgage rates to be two or five years down the line.
As of this morning, five-year swap rates have dropped to 3.64 per cent, down from 4.08 per cent on 27 March. Similarly, two-year swap rates have fallen to 3.74 per cent, from 4.11 per cent on the same date.
How far could mortgage rates fall?Â
The lowest fixed-rate mortgages rarely fall below the equivalent swaps, but recently, a margin has emerged, signalling that mortgage lenders may soon respond to this shift. Over the past few days, this has created an opportunity for the lowest fixed-rate mortgages to potentially drop by up to 0.4 percentage points. Lenders, keen to secure new business, may take advantage of this window, especially given the uncertainty and shifting market dynamics.
If swap rates hold steady and do not increase, the lowest fixed-rate deals, typically available for those with a 40 per cent deposit or more, could drop to around 3.75 per cent. This would represent a significant reduction, providing more affordable options for those seeking to remortgage or purchase a new property. Moreover, there is expected to be a positive impact for those with smaller deposits or less equity, as lenders may adjust their offerings to cater to a broader market.
At present, the lowest five-year fixed-rate mortgage available for someone buying a home with a 20 per cent deposit stands at 4.3 per cent. However, if five-year swaps continue to hover at 3.68 per cent or lower over the coming weeks, the lowest fixed-rate mortgage available for buyers with a 20 per cent deposit could fall to 4 per cent or even lower, potentially providing new opportunities for homebuyers who had been waiting for more favourable conditions. This shift is particularly important for prospective homeowners, as the mortgage market continues to adjust to the current economic environment.
Aaron Strutt, a representative from mortgage broker Trinity Financial, suggested that mortgage borrowers could be in line for unexpected rate cuts following Donald Trump’s recent tariff interventions. He noted that the cost of funding mortgages has fallen considerably, which could pave the way for lower fixed rates. Strutt pointed out that if lenders pass on these funding cost reductions, fixed-rate mortgages at 3.5 per cent could become a reality, even though such a reduction seemed unlikely only a few days ago. This insight underscores the potential for favourable mortgage conditions if market trends continue on their current trajectory.
Other experts in the field also share this optimistic outlook. Peter Stimson, head of product at MPowered Mortgages, commented that falling mortgage rates could serve as one of the few positives amid the global stock market downturn. “For now, Trump’s tariff bombshell is delivering good news for anyone planning to buy a home or remortgage,” said Stimson. “The rapid fall in swap rates has triggered a wave of competition among lenders, and next week should see many of them making significant reductions to the rates they offer to new borrowers.” This surge in competition could result in a more dynamic mortgage market, benefiting both first-time buyers and those looking to remortgage.
Stimson also highlighted that customers with a 20 per cent deposit should be able to secure a fixed rate of around 4 per cent, while those with a 40 per cent deposit might even see rates as low as 3.8 per cent or potentially even 3.75 per cent. This provides an exciting opportunity for those with larger deposits to secure competitive rates, enabling them to take advantage of the current market shifts. For prospective buyers, especially those with a significant deposit, this could lead to substantial savings over the life of the mortgage.
Mark Harris, the chief executive of mortgage broker SPF Private Clients, also expects a flurry of rate cuts if swap rates remain low. He explained, “Assuming no bounce-back in the other direction, I would expect a wave of five-year fixed rates starting with a 3, which would be a significant change from the current market where only one or two are priced under 4 per cent.” This anticipated drop in rates would make long-term fixed mortgages more accessible and appealing to homeowners looking for stability in uncertain times.
Harris further mentioned that Easter is traditionally a quieter period in the mortgage market, with many people away or choosing to put their mortgage plans on hold. As a result, lenders may see this as an opportune time to offer lower rates, providing an incentive for those still in the market to secure competitive deals. This strategic move could allow lenders to attract new customers while managing service levels during a typically quiet period.
In conclusion, the mortgage market is poised for changes in the coming weeks, with predictions of lower fixed-rate mortgages as a result of shifts in swap rates and the broader economic landscape. Mortgage borrowers, especially those with sizeable deposits, should keep an eye on these developments as lenders may soon adjust their offerings to reflect these new market dynamics. The current trend suggests that lower rates could soon become available, benefiting those looking to enter the property market or refinance their existing mortgage. As the situation evolves, it will be interesting to see how these changes play out, and how borrowers can take advantage of this window of opportunity.
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