Bank of England: “Lenders and banks should prepare for negative interest rates in next 6 months.” What could this mean for investors and buyers?
- Rising asset prices in the UK
- Increased purchasing power from the market
- Currency devaluation, in turn to boost exports & imports
- Property price boost in major cities such as London & Birmingham
The Bank of England’s Monetary Policy Committee voted unanimously to maintain the base bank rate at 0.1%. In March 2020, interest rates were first moved down to this level, which is the lowest ever recorded rate, in an emergency response to the coronavirus pandemic.
The Bank of England has also told lenders and banks to prepare for negative interest rates in the next six months. This has been previously discussed. However, the Bank of England has never asked lenders to take steps to prepare for this until now.
Silvana Tenreyro, one of the nine members of Threadneedle Street’s monetary policy committee, said negative rates had worked in other countries and would assist the UK’s recovery from its Covid-19 slump.
At the end of 2020, mortgage approvals were at a 13-year high as homebuyers and investors looked to lock in stamp duty savings and low interest rates. If the base interest rate drops into negative territory, new mortgages could become cheaper. Although, buyers with larger deposits are already able to secure low interest rates.
The move to negative interest rates may result in the value of the pound sterling falling against other currencies and this will subsequently make the UK property market more attractive for overseas investors (perhaps off-setting in real terms recent UK tax changes, including non-resident SDLT).
Below zero rates would see a depreciation in the exchange rate, this would boost the UK’s manufacturing sector as a weaker pound should make exports cheaper.