You might not think events unfolding across the Atlantic would affect your chances of getting a better mortgage deal – but in today’s globalised economy, even one man’s erratic trade policies can ripple into your household budget.
Donald Trump’s return to centre stage is already shaking markets and while the headlines focus on his legal battles and political volatility, there’s a subtler story unfolding – one that could spell unexpected opportunity for UK mortgage holders and homebuyers.
NEW TARIFF STORM
Trump is facing fresh legal challenges, this time over his decision to reintroduce 20% tariffs on Chinese goods. The lawsuit argues that he’s misused the International Emergency Economic Powers Act of 1977, which was designed to allow asset freezes and sanctions – not trade tariffs. Whether the challenge succeeds or not, it adds yet more uncertainty to an already jittery market.
And with the U.S. midterm elections on the horizon, Trump is likely to double down on populist, headline-grabbing policies. Yet recent local elections in the U.S. hint at trouble ahead for his party. A significant voter swing away from Republican candidates could reduce his political clout, limiting his ability to shape policy – and shock markets – after the midterms.
GLOBAL IMPACT
So, what does all this have to do with UK mortgages? Quite a lot, actually.
Markets don’t respond well to instability and Trump’s unpredictable approach has already sent ripples through global financial systems. Over the last few days we’ve seen Gilt yields drop sharply; Oil prices fall by over 8% and the FTSE tumbling nearly 4%.
And, perhaps most significantly, swap rates – which are a key influence on fixed-rate mortgage pricing – sliding lower
In short, global investors are bracing for an economic slowdown but for the UK this could mean a silver lining: cheaper mortgages.
UK BENEFITS
Unlike the U.S., the UK is unlikely to retaliate with its own tariffs. That’s important, because it reduces the chance of inflation being stoked by higher import costs – a key worry in trade wars. Instead, the UK might benefit from a stronger pound, making imports cheaper; lower oil and freight costs, reducing business overheads and energy prices as well as increased competition from exporters who are now locked out of U.S. markets.
All of this contributes to a cooling inflationary outlook. And that puts the Bank of England in a position to act.
INTEREST RATES
Until recently, it seemed like the Bank of England might hold fire or even raise rates to keep inflation under control. But the latest market moves have turned everything upside down.
A base rate cut now looks highly likely on May 8, with markets pricing in a reduction – perhaps 0.25%, though some City analysts would argue a bolder 0.50% cut is justified.
Either way, it could be the start of a more dovish cycle, with some forecasts suggesting the base rate could fall to 3.75% by the end of the year.
Lenders are already reacting. Swap rates – which banks use to hedge fixed-rate mortgage lending – are falling. That means the cost of funding mortgages is dropping fast and rate cuts from high-street lenders could start as early as this week.
HOMEBUYER BOOST
For homebuyers, especially those who’ve been put off by recent hikes in stamp duty or concerns about job security, this is welcome news.
Lower rates mean more affordable monthly repayments – and for some, the difference between renting and owning.
While property market activity has slowed in recent weeks, more competitive mortgage deals could provide a boost as we move through Q2.
For homeowners, there may be a rare window to refinance at a lower rate, especially if you’re coming off a fixed deal this summer.
WHAT'S NEXT?
With Trump in the headlines and markets in flux, it’s hard to look too far ahead. But for now, UK consumers may find themselves unexpectedly cushioned from the chaos.
Unpredictable politics make for volatile markets, but they also open up opportunities.
And right now, for mortgage holders and would-be homebuyers, that opportunity could be a drop in borrowing costs.
Source: Reuters - https://www.reuters.com/markets/
Risk warning - The information contained within was correct at the time of publication but is subject to change.
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