The Bank’s base rate stands at 0.1%, the lowest level on record, so it would not take much to take it into negative territory. The UK would not be the first country to have a negative rate at its central bank – Japan and Sweden are among those that have done so.
If your Mortgage is a variable-rate mortgage – a tracker, or a mortgage on or linked to a lender’s standard variable rate – the rate could fall a little if the base rate is cut. But the drop is likely to be limited by terms and conditions. David Hollingworth, of the mortgage brokers London & Country, says trackers sold very recently have in some cases had a “collar” that prevents the lender from having to cut the rate at all. Skipton building society, for example, has a tracker at 1.29 percentage points above the base rate that can only go up.
Older mortgages often have a minimum rate specified in the small print. The Nationwide building society, for example, will never reduce the rate it tracks below 0% – so if your mortgage is at base rate plus 1 percentage points, it will never fall below 1%. Santander specifies in some mortgages that the lowest rate it will ever charge is 0.0001%.
You will need to dig out your paperwork to see how low your mortgage rate could go.
If a fixed rate then nothing will happen.
But what if the UK follows Denmark, where mortgages with negative interest rates went on sale last year? Borrowers with Jyske Bank were lent money at a rate of -0.5%, which meant the sum they owed fell each month by more than the sum they had repaid. There is no reason why UK lenders could not follow suit, although so far there is no sign that any will.
In the meantime, fixed-rate mortgages are getting cheaper and may continue to fall in price. Big lenders including HSBC and Barclays have reduced fixed-rates this week and more may follow. Hollingworth says borrowers now have a choice of five-year fixed rates below 1.5%, with HSBC’s deal now at 1.39%.
Tracker mortgages have been pulled and repriced with larger margins, to cushion lenders against falling rates. If rates are cut again, expect more of that, as well as the collars already seen on some deals.
A negative base rate means banks and building societies have to pay to keep money on deposit, and it is designed to discourage them from doing so and make them keen to lend.
AND SAVINGS? Savings rates have already been hit by the two base rate cuts in March and most easy-access accounts from high street banks are already paying just 0.1% in interest. Potentially Banks could charge you for money you hold in the Bank !! But realistically that would just lead to everyone withdrawing cash and holding elsewhere. However, some believe savings accounts could begin to charge for holding the money.
Wealthy savers are likely to be the first who would face a charge. Last year UBS started charging its ultra-rich clients a fee for cash savings of more than €500,000 (£449,000), starting at 0.6% a year and rising to 0.75% on larger deposits. And at the Danish Jyske Bank, similar charges apply.
So there is even stronger evidence that using cash to invest in property will give you even greater returns.
And at Church Investments we are seeing more people buying cash investments that offer excellent returns such as Life Reversions.
Why not contact us to get your free Guide on these great investments?
Credit:- full article here at https://www.theguardian.com/business/2020/may/21/what-would-negative-interest-rates-mean-for-mortgages-and-savings