http://www.telegraph.co.uk/finance/personalfinance/interest-rates/11409871/Would-you-feel-the-benefit-of-a-0-base-rate.html
10:10AM GMT 14 Feb 2015
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When interest rates were plunging in 2009, speculation was of an eventual 0pc Bank Rate. It halted in March of that year at 0,5pc. Six years on, we may yet see zero-rate borrowing.
Why now?
The Bank of England expects deflation in coming months, it said this week. If inflation doesn’t return, governor Mark Carney promised to act by reviving its quantitative easing operation, mothballed since July 2012, or by cutting rates. Previously, the Bank has indicated rates wouldn't be cut further.
What would happen to mortgages?
Falling Bank Rate does not necessarily mean falling mortgage rates. Analysts say lenders would be very unlikely to pass on cuts to the estimated 4.2 million on standard variable rates (SVRs). On a brighter note, the 730,000 borrowers on Nationwide’s “base mortgage rate” (BMR) – anyone who took a special rate deal from the building society before 2009 – should benefit. It pledged, back then, that the BMR will never be more than 2pc above Bank Rate.
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It's also worth noting that one of Britain's biggest lenders, Barclays-Woolwich, now moves people on a tracker rather than an SVR when they come off special deals, according to Ray Boulger of broker John Charcol. They should also benefit.
Most people with a tracker mortgage should benefit as most lenders no longer apply “collars”, a minimum level sometimes written into small print prior to the crisis years. However, some lenders can and have reneged on tracking promises because of “market conditions”. [Can you trust your tracker mortgage?]
The vast majority – 85pc of those who took a new mortgage last year – have taken fixed rather than tracker deals, and obviously wouldn’t benefit from a cut.
And savings?
10:10AM GMT 14 Feb 2015
When interest rates were plunging in 2009, speculation was of an eventual 0pc Bank Rate. It halted in March of that year at 0,5pc. Six years on, we may yet see zero-rate borrowing.
Why now?
The Bank of England expects deflation in coming months, it said this week. If inflation doesn’t return, governor Mark Carney promised to act by reviving its quantitative easing operation, mothballed since July 2012, or by cutting rates. Previously, the Bank has indicated rates wouldn't be cut further.
What would happen to mortgages?
Falling Bank Rate does not necessarily mean falling mortgage rates. Analysts say lenders would be very unlikely to pass on cuts to the estimated 4.2 million on standard variable rates (SVRs). On a brighter note, the 730,000 borrowers on Nationwide’s “base mortgage rate” (BMR) – anyone who took a special rate deal from the building society before 2009 – should benefit. It pledged, back then, that the BMR will never be more than 2pc above Bank Rate.
Related Articles
It's also worth noting that one of Britain's biggest lenders, Barclays-Woolwich, now moves people on a tracker rather than an SVR when they come off special deals, according to Ray Boulger of broker John Charcol. They should also benefit.
Most people with a tracker mortgage should benefit as most lenders no longer apply “collars”, a minimum level sometimes written into small print prior to the crisis years. However, some lenders can and have reneged on tracking promises because of “market conditions”. [Can you trust your tracker mortgage?]
The vast majority – 85pc of those who took a new mortgage last year – have taken fixed rather than tracker deals, and obviously wouldn’t benefit from a cut.
And savings?
Banks might reduce the rates on existing accounts but new deals are dependent on how traders on money markets feel about the future direction of rates. And here’s the twist. While Mr Carney’s talking rate cuts, the market is suddenly entertaining the idea of a rate rise within a year. A week ago, traders were pricing in the first rise for August 2016. It means that if anything, banks will be slightly more inclined to offer marginally better rates on the new fixed rates savings they offer.
And investments?
If QE returns, expect a re-run of last time: rising stock markets, property values and particularly bond prices.
The effect may not be as pronounced the second time around. But the bigger caveat is that all of this financial engineering may be storing up unseen problems that could have quite the opposite effect on assets.
What's the prediction for Bank Rate?
The market predicts a rise in the first quarter of 2016. The Inflation Report, based on recent money markets, suggests a base rate of 1.75pc by the start of 2017 and 2.5pc by early 2018. Read more: What next for interest rates?
• Interest rate predictions are included in our weekly newsletter
