Mortgage rates are set to fall sharply in the coming days as banks respond to plunging swap rates, triggered by mounting financial market volatility in the wake of President Trump’s global tariff announcement.
Smaller lenders are already leading the charge. MPowered Mortgages will cut its fixed rates by up to 0.21 percentage points on Tuesday, and analysts expect major high street banks to follow swiftly.
“The speed and scale of the fall in swap rates has triggered a race to react among mortgage lenders,” said Peter Stimson of MPowered Mortgages. “Within the coming days I expect the big six lenders will all follow suit with cuts of their own.”
The changes come at a crucial time for UK homeowners. According to the Financial Conduct Authority, around 1.34 million borrowers are due to roll off their existing fixed-rate deals between now and the end of the year — many of them onto significantly higher rates than they’ve been used to. Any cuts to new deals would offer much-needed relief.
Currently, the lowest five-year fixed rate is 3.99% from First Direct, available to those with a 40% deposit, while the cheapest two-year fix is 4.06% from Halifax, although both deals come with arrangement fees.
Tariff shock triggers market upheaval
Last week, President Trump announced sweeping import tariffs — including 10% on UK goods, 20% on EU imports, and 54% on Chinese products. The news rattled global markets, with trillions wiped from stock exchanges and mounting fears of a worldwide recession.
As a result, expectations have grown that the Bank of England will cut interest rates as early as next month to cushion the blow. Markets now give a 95% probability of a rate cut from the current 4.5%, up from 77% before the tariff announcement.
Swap rates — which lenders use to price fixed mortgages — have dropped in response. On Monday, two-year swaps were down to 3.69%, and five-year swaps fell to 3.63%, according to mortgage broker SPF Private Clients. Both are down nearly 40 basis points from just last Wednesday.
While fixed-rate mortgage pricing often lags behind swap movements, the softening housing market and heightened competition may accelerate the pass-through to consumers.
“In recent weeks we’ve seen several lenders offering loans either at the swap rate or fractionally above it,” said Stimson. “With lenders paring their margins to the bone, it’s likely many will pass on the full benefit of the fall in swap rates to customers — meaning that there could be some spectacular deals available to those buying or remortgaging.”
For thousands of borrowers preparing to remortgage this year, any fall in rates could prove a financial lifeline. Many are coming off five-year fixes that were secured at historically low rates, before the rapid tightening of monetary policy over the past two years.
With inflation easing and swap rates trending downward, a new phase of competition is brewing — and lenders may now be looking to undercut each other to capture market share.
Borrowers are advised to review their mortgage options early, as rate cuts could be brief if economic uncertainty persists or if inflation expectations shift again.
