Outside of President Trump’s inner circle, few are arguing that his renewed push towards protectionism is good for the global – or indeed the US – economy.
Since he announced sweeping new tariffs on 2nd April – which he has since rowed back on – the media went into a tailspin, and with good reason.
The initial shock of announcement caused equity markets to tumble and government bond yields to spike, leading to concerns of an impending global recession.
However, while the economic outlook looks uncertain, paradoxically the net result may not be so bad – positive, even – for the UK’s mortgage and housing markets.
That may sound counterintuitive, but we’re already seeing early signs of a tailwind in the form of falling mortgage rates and benefits to our consumers.
In the first two weeks of this month, swap rates – the key pricing mechanism for fixed-rate mortgages – dropped around 20 to 25 basis points. That might not sound dramatic, but in the world of swaps, it’s a material move.
As a result, we’ve seen a flurry of rate cuts by lenders and the tentative return of sub-4% deals as you will have seen.
What the fall in swap rates suggests is that markets now expect the Bank of England to cut interest rates more aggressively than previously thought.
At the end of March, markets were pricing in two rate cuts for 2025. Now, that’s risen to three – or possibly four – potentially driving the base rate as low as 3.5% by year-end.
While the link between base rate and mortgage pricing is not direct, they tend to move in tandem of course.
If the BoE starts to indicate it will speed up its rate-cutting programme or Trump ramps up the antagonistic rhetoric, we should see swaps fall.
In theory, that should lead to lower mortgage rates and an affordability boost for borrowers. In a market that has been held back by higher borrowing costs, this matters.
Of course, much depends on our own Monetary Policy Committee’s willingness to act. Falling inflation increases the likelihood of that.
Although on the other hand, stronger-than-expected GDP figures in February may lead to a more cautious approach in the near term as the central bank remains concerned about stoking inflation.
The obvious counterpoint is that if President Trump does introduce sweeping tariffs and the world does go into recession, the UK won’t get off scot free.
But as The Economist recently noted, the UK is “unusually well shielded” from the tariffs compared with other nations, thanks to our services-dominant economy.
While the City will certainly feel the impact of reduced global trade volumes, the broader UK economy may prove more resilient than more export and manufacturing-orientated ones. That should bode well for the labour market.
Importantly, lenders have so far shown no signs of retreat. In fact, in recent weeks, both Santander and Lloyds relaxed their stress testing requirements, allowing borrowers to stack up for larger loans based on affordability assessments. That’s hardly the behaviour of banks expecting a property market downturn.
At the asset level, UK residential property continues to look comparatively robust. Post-crisis lending rules and stress testing mean that homeowners are better insulated from rate shocks than they have been in previous cycles.
Meanwhile, we have a government that has made economic growth the defining mission of this Parliament and a regulator, acting on orders from MPs, that is actively working to cut red tape in financial services and to both enable and encourage growth.
Together, these will be the key drivers of activity in the mortgage market going forward and should act as a supportive backdrop for lending. This is good news for Stonebridge broker firms and mortgage intermediaries generally,
To be clear, I’m not arguing in favour of tariffs or protectionism. These policies carry serious risks for many sectors and regions. Nor am I arguing that the tariffs themselves will turbocharge lending.
What I am saying is that, rather than being a drag on activity, the indirect effects on UK monetary policy and mortgage pricing of Trump’s tariffs appear to be mildly beneficial so far.
In a fast-moving environment, things could change quickly, of course. But as things stand, I remain upbeat about the outlook for the UK mortgage market and for the increasing demand for mortgage advice.
Rob Clifford is chief executive of mortgage and protection network Stonebridge
