In the event of negative interest rates...

adamjth

Hi,

In a few months time I will come out of the fixed rated on my mortgage and revert to SVR.  Normally I would go shop around for another fix deal but I keep reading reports of the possibility of negative interest rate (albeit mainly media speculation) as part of the BoE attempt to stimulate the economy.   My read on this is that mortgage rates for the consumer will remain positive so am tempted to just go & fix again for a five year term or maybe a tracker.   Any opinions on this? Please point me to any links if this has come up before

thanks
Adam

K_S

There has been some discussion in this thread here https://forums.moneysavingexpert.com/discussion/6234900/there-has-been-a-revival-of-negative-base-rate-speculation-across-the-media#latest

Personally, this wouldn't play a big part in a remortgage decision that I would make if in your place.

tim_london

Don't speculate on market - if there's a way to save you money now then do it now.  

BoE stimulus' effect on economy will always lag behind reality.  The fact that BoE is considering negative interest means there's a chance of mass unemployment.  Mass unemployment means risk of borrow and lenders will increase mortgage rate to offset the risk.  By the time employment rate recovers and lenders reduces the perceived risk and reduce tracker rates BoE will increase the interest rate to pay back the deficit and bump up the mortgage rates again.  That's the macro economics anyway.

And sure between those macro moves there will be small gaps before the market settles and someone could make big wins.  But please never use the roof over your head and actual debt to play with those gaps.

For that reason tracker is a no-no for me.  Covid uncertainty, the recent resurgence of sub-prime lenders, Boris announcing govt backed 5% deposit mortgages - feels too uncertain to me.  Personally I'd stick with 5% fixed.

IAMIAM

I think from my past post, a lot are suggesting that it will not happen. However, I do not see mass unemployment over the summer resulting in a dramatic rise in rates over the next 12-18 months. Although the base rate has remained at 0.1% for a year now, but mortgage rates have gone from 1.25% to 3% for the same LTV over that period and now returning back to 1.25%, however it is very slow in doing so. I feel sorry for people who have 80% LTV as rates are double what they were some time ago and also double the 75% LTV rate with the same lender at the minute. Let alone, the 90% LTV people, my rate was around 2.44% for this 5 years ago, it is now circa 3-3.5%

Getting_greyer

They can affect output just by announcing that they want banks ready for -ve rate 6 months in the future.  Just like if they announce inflation will x in the future.  If you assume some restrictions eased by June, then banks may sell more loans prior to August. That may increase output meaning -ve rate not needed in the end.   But who knows. In any case negative base rate doesn't mean there will be mortgage products that are negative.

Thrugelmir

Suggest you read up the BOE base rate and understand it's purpose. As has nothing to do with the pricing of consumer finance. 

adamjth

Thrugelmir said:

Suggest you read up the BOE base rate and understand it's purpose. As has nothing to do with the pricing of consumer finance. 

I had and hence my comment " My read on this is that mortgage rates for the consumer will remain positive so am tempted to just go & fix again for a five year term or maybe a tracker."  As the cliche goes we are in unprecedented times so I was soliciting opinions.  suggest you read up on eQ you will get a whole better level of  interaction