The Bank of England has refused to rule out cutting interest rates to below zero to boost the economy, but the move would penalise savers while rewarding homeowners.

The Bank’s governor, Andrew Bailey, has confirmed that negative interest rates are under “active review” after being questioned by MPs on Wednesday. Speaking at a hearing with the Treasury Select committee he told MPs that the Bank was looking at how effectively other central banks have used negative interest rates. He said “We do not rule things out as a matter of principle. That would be a foolish thing to do. But can I then follow that up by saying that doesn’t mean that we rule things in.”

Policymakers are considering negative interest rates after official figures showed that inflation had fallen to a four-year low of 0.8% in April – well below the Bank’s 2% target. The Bank has already cut the base rate to a record low of 0.1% to help support the economy amid concerns about the coronavirus pandemic. Lower interest rates can be used to help boost the economy as they make it cheaper for households and businesses to borrow money.

Japan’s central bank and the European Central Bank have both already adopted negative interest rates.

How do negative interest rates work?

If a country’s central bank sets its base rate below zero, high street banks must pay to deposit cash with it.

It is an extreme measure designed to encourage banks to lend more money to businesses and consumers in order to stimulate the economy.

For example, if the interest rate goes below zero it will encourage high street banks to offer cheaper loan rates to the public.

How could negative interest rates affect savings?

For savers negative interest rates are huge problem as they will see their cash eroded. This is because they are will be charged by banks to look after their cash. If the bank cuts the base rate below 0% this means further woe for savers who have already seen rates plummet this year.

The situation for savers is desperate and things just continue to get worse. If anyone does offer negative savings rates it would be the big banks, but I do not see it happening. Savers faced with having to pay to keep their money with a provider will find other things to do with it.

Definitely yes! One big difference between the challenges of 2020 and the economic turbulence of 2008’s credit crunch is that there is no issue with the liquidity for banks and building societies.

Expats should review their UK mortgage and potentially save thousands

Make no bones about it, 2020 is the year of the expat re-mortgage. You only need look at the rates being offered by lenders – particularly in the lower LTV bands. These rates are not going to stay this low for much longer so if you have a expat current variable rate mortgage review it sooner rather than later.

Research suggests that over half of all expat borrowers who move to their lender’s standard variable rate after the current deal finishes don’t re-mortgage or product transfer for 10 years, while a quarter of re-mortgagors were said to find the whole re-mortgage process difficult, with 42% saying they didn’t have time to shop around.

The ‘shopping around’ mentality is clearly far more embedded in the UK consumer than ever before, however this doesn’t always translate to mortgage borrowers, even when the savings can be far more than changing utility company or broadband provider.

Expats need to get the message that re-mortgaging is where substantial savings can be made – especially with rates as they are now. Rates are unlikely to remain this low for much longer so acting now could save thousand in the future.

A re-mortgage is not always suitable for everybody as your existing deal may well have penalties attached to change within the discounted period. It is always recommended to seek independent professional help as to what is best advice to suit your needs.

Like to talk over your mortgage needs?

If you are looking to secure a new or re-mortgage please do make contact and one of our independent advisers will be happy to assist.

Expats should take heart

The direct and indirect impact of COVID-19 has affected the performance of different sectors and financial markets in different ways. The world’s major indices have suffered considerable losses – recently, it was reported that The Dow Jones Industrial Average crashed by almost 32%.

Other financial assets have so far proven resilient, such as UK real estate

The ‘Boris bounce’

House prices are typically used as an indicator of capital growth for real estate. In 2019, the political deadlock over Brexit resulted in significant market uncertainty and modest house price growth. Some commentators feared house prices would drop significantly as a consequence of Brexit – however unlikely such events actually were.

Boris Johnson’s victory in the 2020 General Election and his subsequent ability to pass the EU Withdrawal Bill through parliament resulted in surging investor interest in residential real estate. House Price Indexes for March 2020 provided evidence to this affect.

Both Halifax and Nationwide recorded that average residential property prices that month were 3% higher than they were the year prior.

With Brexit uncertainty forgotten, sellers were again eager to place their properties on the market. Coupled with the government’s growing excitement about ushering their new ‘housebuilding revolution’, it seemed that the UK was finally ready to confront the ongoing housing crisis and match the growing demand for housing with the adequate level of supply; generating strong increases market activity and a return of strong value returns all-round.

COVID-19 has put a pause on transactions

Lockdown measures imposed by the government in a bid to contain the COVID-19 outbreak has had a significant impact on the real estate market.

For the moment, the government is actively discouraging people from buying and selling properties, and some lenders have reacted to this news by deciding not to take on new enquiries.

However, I believe the momentum around the post ‘Boris Bounce’-market has not disappeared. In fact, in lieu of transactions being available, pent-up demand is likely to further exacerbate market activity once the pandemic is over.

Ultimately, it can be said that COVID-19 has, in a sense, taken the place of Brexit uncertainty in artificially supressing market activity and, thus, property price growth.

This means that once the virus is contained there is no reason to suggest why the property market will not make a quick recovery.

Definitely yes! One big difference between the challenges of 2020 and the economic turbulence of 2008’s credit crunch is that there is no issue with the liquidity for banks and building societies.

They have the means and the willingness to lend. However, what we are seeing are disparities with how each lender responds to the current situation.

Some lenders have been impacted from a service perspective more than others due to staff shortages.

We are seeing these lenders have to withdraw some mortgage products, or to cap loan to values (the percentage of the property value they will lend as a mortgage against the property) to limit and manage the amount of business they attract, in order to give themselves breathing space.

For example, in recent days some major lenders have temporarily introduced a maximum loan to value of 60% whilst they manage service levels.

What about a valuation?

Physical valuations have been put on hold during this period of self-isolation. This means that valuations are currently deferred for an initial period of around four weeks.

However, this does not mean you should hold off applying for your mortgage. By submitting the application you are locking in the mortgage rate offered with most lenders, which with current fluctuations is worthwhile to secure a low rate on your mortgage.

You can also get the majority of the paperwork and processing done, so that just the valuation will be required.

Also, some lenders will look to do a valuation on a desktop, or automated basis using data and knowledge of the location.

Where these are applicable, and on re-mortgages these are quite common, applications are processing to mortgage offer as normal. A broker can help guide you on which lenders offer these types of valuations.

Need assistance?

Our professional independent advisers are used to dealing with all types mortgages, they have vast experience in the expat mortgage market.