Bank of England Rate Cut - Could it go to zero ?

Posted: 5/8/2016


The property industry is still absorbing yesterday’s interest rate cut to 0.25%, together with the warning that interest rates could be zero by the end of this year.

The consensus is that the cut could be welcome news to home owners on tracker mortgages, and possibly to other borrowers, and provide a boost to investment in the buy-to-let market – but is a severe blow to first-time buyers, savers and anyone hoping to retire.

Only 1.5m mortgages track the Bank of England base rate and these borrowers would save to the tune of £22 a month. Yesterday, four lenders passed these savings on.

As yet, there is no guarantee that there will be rate cuts to other types of mortgages.

Savers could see very little point in traditional bank savings, with just £40 interest a year now being earned on £10,000 in a typical easy access account – with the effects being felt by anyone saving for a deposit, as well as investors looking for better returns.

If commentators are correct, it will mean more pressure in the market as first-time buyers increasingly struggle to compete against buy-to-let investors.

NAEA managing director Mark Hayward said: “We will see aspiring home owners saving harder for longer, which will no doubt have an impact on the number of first-time buyers succeeding in their dream of acquiring their own home.”

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, agreed that first-time buyers will be hit.

He said: “The winners of the base rate cut will be remortgagers and those on tracker rates, but those most in need – first-time buyers – will continue to find conditions challenging.”

London agent Ben Madden, managing director of Thorgills, was upbeat, saying: “The first rate cut for seven years can only be a positive for the UK property market. For many home owners, their mortgage costs have just fallen even further.

“The property market has by no means imploded since the vote to leave the EU but the decision to cut rates further, and also print more money, should inject additional confidence into UK bricks and mortar.”

Graham Davidson, managing director of Sequre Property Investment, said: “Those relying on traditional forms of savings such as ISAs and high interest savings accounts could see their gains wiped out, with some ISAs already returning less than 1%.

“We may see a new wave of investors favouring buy-to-let property thanks to its potential for stable higher returns and capital growth, particularly in under-valued areas.”

Stuart Law, CEO of investment firm Assetz Property, agreed, saying: “Although the decision to slash interest rates to 0.25% will make mortgages even cheaper, it is a major blow to savers who are already getting poor returns.

“This will accelerate the slide in savings account interest rates to near zero, whilst at the same time the small dividends from the stock market don’t really compensate for fluctuating share price risks.

“As a result we expect to see continued growth in people looking to income from other asset classes, such as buy-to-let, where they can get typically three to five times the income that they could now get from a bank account and still have good long-term security of capital.

“Buy-to-let landlords investing in northern property in particular will thrive as the market appears to be remaining stable post-Brexit.

“Prices continue to be modest versus the south, while gross yields are reaching up to 8.5% on average, compared to just 3.5% in the capital.

“We expect investors to concentrate on investing for yields in order to avoid having to eat into their capital for day to day living costs, as would happen if they left their cash in a near zero return bank account.”




Back to News

 Click here for a competitive quote for Landlords Insurance  property-ombudsman NI Tourism Certified Accommodation to Rent