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Will we see negative interest rates after tomorrow’s MPC meeting?

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“The chance of negative interest rates being announced at tomorrow’s meeting is slim. There is simply too much uncertainty in the air, which is why the Bank of England will no doubt continue with its “wait and see” approach. The MPC is hoping further quantitative easing measures will provide the boost needed to carry the economy through the second lockdown which takes effect in England from tomorrow. The full effects of this approach will be revealed in the ensuing weeks.

“What is clear is that the Bank of England is running out of alternatives. If its stimulus packages do not work, it will have no choice but to consider negative interest rates. Naturally, the MPC is treading carefully. There is no turning back once this decision is made and the actual impact this is likely to have on consumers and investors is not fully known. However, if COVID-19 continues to drag an economy attempting to rebound, we should expect negative interest rates coming into play sooner rather than later.

“So, what would negative interest rates mean for the property market?

“Theoretically, those with cash savings would be charged for holding money in a bank account, while prospective homebuyers would be encouraged to take out a mortgage due to the extremely low rates.

“Interestingly, the property market is already alive with activity, and this boils down to the success of the Stamp Duty holiday. Buyers are flocking to UK property, and this demand is driving house prices higher. With it now being reported that mortgages are taking longer to process due to rising enquiries, negative interest rates would only increase the pressure currently being felt by lenders. As such, I would not expect there to be much change in mortgage rates should negative rates be announced.”

 

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