- One mortgage broker thinks we could see a 3.5% fixed rate mortgage soon
Mortgage rates look set to fall over the coming weeks according to a key metric, after Donald Trump’s tariff announcements led to predictions of faster interest rate cuts.
In response to Trump’s tariff announcements on Wednesday, markets are now forecasting three further interest rate cuts this year by the Bank of England.
The general consensus is that interest rates will end up at 3.75 per cent by the end of 2025, rather than 4 per cent than was previously predicted.
Fixed-rate mortgage pricing is largely based on Sonia swap rates – the inter-bank lending rate which shows where banks think mortgage rates will be two or five years in the future.
Five-year swaps have fallen to 3.64 per cent this morning, down from 4.08 per cent on 27 March.
Meanwhile two-year swaps hit 3.74 per cent, down from 4.11 per cent on 27 March.
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Sonia swaps falling: Fixed-rate mortgage pricing is largely based on Sonia swap rates – the inter-bank lending rate, based on future interest rate expectations
How far could mortgage rates fall?
While the lowest fixed rate mortgage rarely go below the equivalent swaps, a margin has now opened up over the past few days that mortgage lenders are expected to respond to.
Hypothetically, it could send the lowest fixed rate mortgages down by up to 0.4 percentage points with lenders eager to do business at present.
Unless swaps move upwards again, the lowest fixed rate deals, usually aimed at those with a 40 per cent deposit or more, could fall as low as around 3.75 per cent.
There would also be improvements for those with smaller deposits or equity.
The lowest five-year fix for someone buying a home with a 20 per cent deposit is 4.3 per cent at present.
If five-year swaps remain at 3.68 per cent or lower over the coming weeks, then there the lowest fixed rate for those buying with a 20 per cent deposits could go to 4 per cent or lower.
‘Mortgage borrowers may be in line for unexpected rate cuts following Donald Trump’s tariff interventions,’ said Aaron Strutt of mortgage broker Trinity Financial.
‘The cost of funding mortgages has dropped quite significantly which means lower fixed rates may be on their way.
‘If lenders do pass on these funding cost reductions we may well get 3.5 per cent fixed rates again even though this seemed unlikely just a few days ago.’
Other experts we spoke to also expect mortgage rate cuts over the coming weeks.
Peter Stimson, head of product at MPowered Mortgages says falling mortgage rates would be one small silver lining amidst global stock markets tumbling.
‘For now Trump’s tariff bombshell is delivering good news for anyone planning to buy a home or remortgage, said Stimson.
‘The rapid fall in swap rates has fired the starting gun on a new wave of competition on mortgage rates.
‘Next week should see many lenders make significant reductions to the rates they offer to new borrowers.
‘Customers with a 20 per cent deposit should be able to pick up a fixed rate of around 4 per cent, and if you’re lucky enough to have a 40 per cent deposit you could see rates of 3.8 per cent or even 3.75 per cent.’
Mark Harris, chief executive of mortgage broker SPF Private Clients is also expecting a flurry of rate cuts if swaps don’t go back up again.
He says: ‘Assuming no bounce back in the other direction, I would expect a flurry of five-year fixed rates starting with a 3 as opposed to the current position of only one or two priced under 4 per cent.
‘I would not rule out a five-year at 3.75 per cent in the next week or so if this is where swap rates settle.
‘Easter is also a traditionally quiet period with many people away or putting mortgage moves on hold so lenders may think this is a good time to offer a cheap rate without threatening service levels too much.’
Best mortgage rates and how to find them
Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs.
That makes it even more important to search out the best possible rate for you and get good mortgage advice.
Quick mortgage finder links with This is Money’s partner L&C
> Find the right mortgage for you
To help our readers find the best mortgage, This is Money has partnered with the UK’s leading fee-free broker L&C.
This is Money and L&C’s mortgage calculator can let you compare deals to see which ones suit your home’s value and level of deposit.
You can compare fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes.
If you’re ready to find your next mortgage, why not use This is Money and L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.
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Mortgage rates set to fall as tariffs spark predictions of more interest rate cuts in 2025