A raft of mortgage lenders have slashed rates as the fallout of US President Trump’s tariffs continues to shock financial markets.
On Wednesday, Coventry Building Society cut its two-year fixed rate to below 4%, following other UK lenders that have made similar moves. According to experts, more are set to follow.
The building society says the two fixed rate will stay at 3.89% until the end of October 2027. Although it important to note that the product is only for borrowers with a 65% loan-to-value and comes with a £999 fee. Head of mortgage relations at Coventry, Jonathan Stinton, said there is “growing demand for shorter-term flexibility in an uncertain market”.
The cuts come as financial markets and economists are predicting that the Bank of England will reduce borrowing costs by more than expected this year to avoid a crisis. On Wednesday, experts predicted that there will be three Bank of England rate cuts over the next 12 months – with 30% thinking there will be a fourth. This is up from two cuts at the start of the week.
Central banks often cut interest rates in response to concerns of an economic downturn in the hope that cheaper borrowing will encourage more spending.
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Last week, a 10% “baseline” trade tariff came into effect, as well as a raft of global tariffs ranging from 11% to 50% on all imports from 60 countries he dubbed the “worst offenders” for what he considers unfair trade practices.
Several countries have been hit particularly hard – including China – which is home to the world’s second-largest economy. Other countries on Trump’s “worst offenders” list include Cambodia (now under a 49% tariff), Vietnam (46%) and India (26%).
Trump coined it “liberation day,” with the move almost equivalent to throwing a grenade into the centre of some of the world’s biggest economies. In the UK, the interest rate swap market – which is the main pricing mechanism for fixed-rate mortgages – plummeted after the US president announced the tariffs.
Two-year swaps, which are closely linked to near-term interest rate expectations, fell as low as 3.64% on Monday – their lowest since just before Liz Truss became Prime Minister. Five-year swap rates – which are used to price longer deals – also fell sharply.
Rachel Springall from Moneyfacts said it “traditionally takes a couple of weeks for lenders to respond to swap market volatility”. However, when once large brands and lenders cut rates, it was common for others to follow.
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She said: “Lenders use swap rates to determine where they should price their range, so when these fall due to other market influences, it could spell good news to the millions of borrowers who will refinance this year.
“Over the past couple of days, we have seen a few lenders cut fixed mortgage rates, so it will be interesting to see if more tweaks are on the way from other lenders competing for business. It traditionally takes a couple of weeks for lenders to respond to swap market volatility, but usually, once a notable brand moves to cut mortgage rates, others tend to follow suit.”
Mortgage brokers expect further falls in the coming days as the “Big Six” lenders – Halifax, Nationwide, HSBC, Santander, Lloyds, and Natwest – continue to adopt a “wait and see” approach by so far not announcing any cuts. Lenders who have cut rates since the start of this week include:
The Co-operative Bank has also cut its two-year, three-year, and five-year fixed rates on certain purchase mortgages by 0.14 percentage points today. It’s important to note that despite the cuts, many mortgage holders coming off fixed deals signed before interest rates started rising in 2021 are likely to face a more expensive loan when they refinance this time around.
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