US president Donald Trump’s robust approach to trade policy may prove to be a boon for UK mortgage rates, by forcing the Bank of England (BoE) to cut the base rate further and faster than expected this year.
The US administration’s imposition of trade tariffs on the rest of the world has been dizzying. Last month, Trump imposed a 10% baseline tariff on over 75 countries, including the UK, and higher charges for countries it considered it had an unfair balance of trade with, such as 20% on the EU, 24% on Japan and 25% on South Korea.
But, less than two weeks later, the US president announced a 90-day pause on most tariffs over 10%, as his administration seeks to negotiate bespoke deals with other nations.
While lower rates are helping to boost activity, that is being balanced out by broader concerns about the global picture
China is the notable exception. The US has imposed a 145% tariff on most Chinese goods, while China has a 125% charge on American imports.
The highest tariffs in almost 100 years from the world’s biggest importer have left markets reeling. US investment bank JP Morgan put America’s chances of slipping into a recession this year at 60%.
The BoE’s Financial Policy Committee last month said the global economic environment had “deteriorated”.
It added: “As the UK is an open economy with a large financial sector, global risks are particularly relevant to UK financial stability.”
The S&P 500 is down 6% for the year to date at the time of writing (the start of the final week of April), although the FTSE 100 has recovered and is now up 2.1% over the same period.
Private Finance technical director Chris Sykes says: “Movements in global stock prices also affect deposit levels potential buyers may have and, further to that, foreign exchange rates may affect foreign buyers’ bargaining power.”
We could be in for as many as three rate cuts and as little as one
However, across the UK mortgage market the effect of the US tariffs has been a round of price cuts, with major lenders such as Barclays, Coventry Building Society, HSBC, Santander and TSB offering sub-4% home loans. This was sparked by calculations that the BoE’s Monetary Policy Committee (MPC) might be forced to make more than the two quarter-point base rate cuts in 2025 that the market expected in January.
Trinity Financial product and communications director Aaron Strutt says: “Some of our clients are worried about house prices, inflation, the tariffs, and wonder whether it is a good idea to buy at the moment.
“This is where base rate reductions may well help to bring the cost of borrowing down and provide a bit more market confidence.”
John Charcol mortgage technical manager Nicholas Mendes adds: “There has been a definite shift in sentiment.
“On the one hand, the fall in swap rates has already opened the door to more competitive mortgage pricing, which is encouraging for buyers. Some lenders have moved quickly to offer sub-4% deals — that has sparked interest among purchasers and remortgagers.”
But Mendes points out: “At the same time, there is a degree of nervousness creeping in. People are unsure how secure their jobs are and what the wider economic outlook will be.
Some of our clients are worried about house prices, inflation, the tariffs, and wonder whether it is a good idea to buy at the moment
“So, while lower rates are helping to boost activity, that is being balanced out by broader concerns about the global picture.”
The MPC is widely expected to cut rates, currently at 4.5%, for the fourth time since August 2024 when it meets on 8 May.
Goldman Sachs analyst James Moberly and Deutsche Bank chief UK economist Sanjay Raja are at the aggressive end of the spectrum, forecasting four rate cuts in 2025.
Raja added last month that the “hit from tariffs” had dented Deutsche Bank’s growth forecast for the UK to 0.8% this year, from 1%.
The German bank also expects UK inflation, currently at 2.6%, to hit 3.6% in the second half of the year as slower hiring and the possibility of cheaper goods imported from China are offset by energy price rises and employers’ National Insurance hikes.
Mortgage Finance Brokers business development director Jeni Browne estimates central bank policymakers will be cautious.
She says: “We could be in for as many as three rate cuts and as little as one.
Foreign exchange rates may affect foreign buyers’ bargaining power
“Trump is likely to move on his tariffs and, while the MPC will be looking to react in May, much can change throughout the course of the rest of the year.”
Mendes adds that brokers will be studying the risk to which lenders’ pipelines are exposed. He says this comes as “borrowers try to switch to other products in the middle of the mortgage process to access better deals. This may create operational and financial challenges for lenders”.
However, global trade policy has got the mortgage market moving — even if it is unsure of the script.
This article featured in the May 2025 edition of Mortgage Strategy.
If you would like to subscribe to the monthly print or digital magazine, please click here.
The post News Analysis – Will 2025 be the year of high tariffs and low base rates? appeared first on Mortgage Strategy.