An aggressive escalation in trade tensions, once again courtesy of U.S. President Donald Trump, where on April 2nd, the White House unveiled a sweeping 10% blanket tariff on all imports. That wasn’t all—tariffs on Chinese goods were hiked to an eye-watering 145%, effectively kicking off a trade war that’s been simmering for years. Beijing retaliated in kind, slapping 34% tariffs on a range of U.S. exports.
Since then, the market reaction has been swift and brutal. Global equities retreated, wiping more than $5 trillion off the MSCI All-Country World Index in just days. What made it particularly unsettling was that bond markets didn’t offer their usual safe-haven stability. Quite the opposite—investors dumped U.S. Treasuries, sending yields soaring and suggesting a loss of faith in both the economic outlook and policymakers' grip on the tiller.
That rare scenario—stocks falling, bonds falling—set off alarm bells. The fear now? Stagflation. That toxic mix of high inflation and stagnating growth is the kind of economic environment that leaves central banks cornered and consumers squeezed.
In an effort to calm the panic, Trump has since announced a 90-day “pause” on further tariff hikes, except for China where they have been hit with 145% tariffs on products entering the US. But let’s be honest—markets are jittery for a reason. The damage to confidence may already be done.
What Does This Mean for the UK Lending Market?
So what does this mean for us on this side of the Atlantic?
There could be an unexpected benefit of these tariffs for the UK. With China looking for new outlets for their exports, it could cause a price reduction in a huge amount of products, especially raw materials. This could be hugely deflationary and could filter through to have huge benefits within industries such as construction and development.
Oil price has dropped from $71 a barrel down to $61 a barrel in the last month alone, with fears that the tariffs could spark a global recession.
With all of this data, the UK lending market has seen a massive shift in the outlook of future interest rates. Two-year SONIA SWAP rates have fallen through the floor and are now priced lower than 5-year SONIA SWAP rates for the first time in a while. With this, we have seen mortgage lenders slash their 2-year fixed options in the market. This is important as this is how fixed-rate mortgages are priced.
The cheapest two-year fixed rate as of 14.04 is 3.89% on a retention product. We are expecting to see a raft of mortgage rate reductions against 2 & 5-year fixed products this week and next week. As you can see from the chart below the 2-year SONIA SWAP has pretty much dropped 1% from this time last year.
Managing Volatility
Across our business, we are currently monitoring the movements in the markets. What this essentially means is we review every single live lending case until the case is completed. Why is this important?
Well, the reason this is so important is that we can secure new pricing when rates are reduced. If we have secured you a mortgage or commercial mortgage and the rates have come down, on most occasions, we are able to move the product to a lending product which is in line with the latest pricing in the market.
E.g. You apply for a £1,000,000 mortgage in February and secure your rate at 4.5%. Each month we review this product. In March, the rate was reduced to 4.2%, which is a £15,000 saving over a 5-year fixed rate. Again in April, this rate reduces to 3.9% and your mortgage is then due to complete.
Total savings on rate – 0.6%
Total cash savings over the term of the mortgage - £30,000
You can see why it is not in the bank's interest to make their customers aware of this directly. Make sure you have an adviser on your team to navigate the choppy waters we find ourselves in!
UK inflation dips to 2.6%
As noted above, there is considerable deflationary pressure globally at the moment. The biggest one is the drop in petrol prices. There is an expected bounce back in April due to increased household bills. Although we wait to see how this plays out.
This mounts further pressure on the Bank of England to vote for another rate cut at the next meeting. Given where SONIA SWAP rates are currently, the markets are definitely expecting more rate cuts this year.
Commercial Lending Fixed Rates hit sub 6%!
This is something we have been waiting for a long time, but with the recent reduction in 5-year SONIA SWAPS, we have seen a number of banks quote 5-year commercial term debt under 6% for low-risk assets and industries. We have seen 5-year fixed pricing come in at 5.9% on a deal this week when quoting indicative terms. Please note we expect this sort of pricing to only be available to sub 55% LTV and mainly on owner occupier debt, with minimum debt sizes of £1m.
On other real estate investment transactions, we are seeing low leverage deals quoted as low as 1.7% over base, or 6.1% fixed pricing when looking at sub-50 % LTV. With this current window of opportunity, we are urging all of our network to get in touch. We have seen these windows of opportunity before, and they haven't lasted long with the volatility in the market.