The Bank of England Base Rate will have been at its current record low level of 0.50% for four years if the Monetary Policy Committee (MPC) elects to hold it next week as anticipated. Although the mortgage market has been difficult in recent years the low Base Rate has meant that some have been able to keep things on an even keel whilst others have enjoyed extremely low mortgage rates.
The big winners in recent years are those that bagged an ultra low lifetime tracker back in 2007. At that point mortgage deals could be found with rates pegged at less than a quarter of one per cent above Base Rate for the life of the mortgage. The plummeting Base Rate meant that these borrowers saw monthly payments drop and could have been paying less than 0.75% for the last four years.
Now Paul Tucker, the Deputy Governor of the Bank of England has said that negative interest rates should be considered to help stimulate lending. Although the Funding for Lending Scheme has helped improve competition in the mortgage market recently there remains concern over the lending levels to small businesses.
If the Bank of England started to charge for holding institution’s cash then the theory is that it would force more lending. When this approach has been employed by other countries it has been applied to the rate paid by the central bank on deposits rather than to the official Bank Rate.
However, if Base rate were to be cut further then it is tracker borrowers that have the most to gain. In theory some could see their interest rate fall to zero. However, some Base Rate tracker deals carry a collar, imposing a minimum rate that would prevent the mortgage rate dropping, even if the MPC did cut the Bank Rate.
Either way it looks likely that low interest rates are set to stay for some time. Those that haven’t already taken the opportunity to overpay might like to consider whether they should take advantage of low rates.
Overpaying will help save interest and cut the outstanding mortgage balance, which will certainly stand borrowers in good stead when rates do start to climb. To see the impact of making regular monthly payments try our online overpayment calculator.