The Bank of England has shown great consistency with its base rate, which is held at the record low of 0.1%. This move was implemented in March of 2020, as the impact of the pandemic started to unfold, and mortgage borrowers should find out more.
Now, in May of 2021, the base rate remains at this level, while quantitative easing has been maintained at £895 billion.
The chief purpose of low-interest rates is to encourage people to spend, rather than save. While the past year has been financially challenging for many households, there are also families and individuals who have saved money or made money throughout the past year.
Saving for a deposit might become harder for some mortgage borrowers
The Bank of England measures aim to encourage these people to spend, as opposed to saving their money.
The impact on property buyers depends on where the person is at in terms of their home-buying journey.
Anyone in the process of saving for a deposit will find low-interest rates stifle the return they hope to receive on their savings. Conversely, the prospective buyers who have already saved funds, and are now paying a mortgage, could benefit from the minimal interest rate.
As is often the case in the property buyers’ market, one person’s reaction to changes in interest rates is likely to be different to someone else’s.
What do industry experts say?
Killik & Co associate investment director Rachel Winter says: “In a bid to reignite the economy before the UK is scheduled to fully reopen next month, low-interest rates will remain a prime catalyst in turning savers into spenders. In the upcoming months, the Bank of England will be hoping that people loosen their grip on the purse strings and start spending their lockdown savings. Government intervention in borrowing such as the mortgage guarantee and breathing space schemes should start to ease tentative borrowers’ concerns. Already it seems as though this strategy is building momentum as recent Bank of England figures show that mortgage borrowing reached record highs and UK households have repaid more bank loans than they have taken out.”
Rachel Winter concluded by saying; “However, despite this, many will have grimaced at the thought of continual low rates. Cash could be sitting idly in saving accounts for a while, so staunch savers and those nearing pension age should start to look for alternative investments to reap more satisfactory rewards.”
Will changes occur soon?
Asset Intelligence investment consultant Kel Nwanuforo adds: “The Bank of England’s Monetary Policy Committee has opted to maintain the status quo, marking 14 months since rates were cut to a record low in the face of the pandemic. However, while major policy changes are unlikely, we think the Bank of England could be tempted to join its Canadian counterpart in tapering asset purchases within the next few months. If growth is maintained, and the unlocking of the economy stays on course, the impact on readings such as inflation will likely be significant given last year’s comparative figures, and this could lead the Bank to reassess aspects of its overall policy stance.”
Kel Nwanuforo concluded; “For investors, things remain as they were for now – cash offers an almost guaranteed negative return because of inflation, while yields on fixed-income look increasingly challenged by rising inflation expectations.”
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DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.