Lenders Preparing for Negative Interest Rates

As the UK’s Covid-19 vaccination programme gathers pace, the Bank of England expects the economy to bounce back strongly as the year progresses, however it also expects it to shrink by 4.2% in the first quarter of 2021.

The government’s tighter restrictions to control the virus across January and February will subdue the economy, but as infection rates fall and we vaccinate more and more people, the Bank expects consumer confidence to return in the spring and with that an increase in spending.

That said, the Bank of England have also told banks to ready themselves for a possible introduction of negative interest rates within the next six months, should the economic recovery not be as strong as hoped.

What are negative interest rates?

The Bank of England base rate determines how much interest the Bank pays to financial institutions that hold money with it, and what it charges them to borrow money.

Banks also use it to decide how much interest to pay on savings and the rates they will charge borrowers for things like loans and mortgages.

Lowering interest rates helps the economy because it results in people spending more.

The Bank of England will expect introducing a negative base rate to have the same effect, although with all the financial fallout for families post-pandemic it may not be that simple.

What this means for your money

Negative interest rates will hit savers hardest as they will effectively be paying to hold money in savings accounts rather than earning interest on it.

Interest rates have already been at record lows for over a decade so this news will add to the pain savers have become accustomed to.

The Bank has already cut interest rates to just 0.1% thanks to the pandemic in a bid to protect the economy and the move below 0% would be unprecedented but it’s very much a possibility.

This doesn’t necessarily mean banks would start charging you to hold your money straight away but of course you wouldn’t see any financial benefit in keeping your money in savings accounts.

What are your options?

Whilst the pandemic has of course caused financial dismay for many, it has also given a lot of people the opportunity to save more due to the social restrictions we’ve faced.

Whatever financial journey you’ve been on recently, if you are in a situation where you have money sat in savings accounts, you will no doubt be considering your options. Even if we don’t end up with negative interest rates, rates will still be at a historic low for the foreseeable future so there’s very little benefit in leaving your money in the bank. It’s a great time to make it work harder and generate returns.

Which brings us to investing, and specifically property investing.

House prices rose by 7.3% in 2020, according to Nationwide, a six-year high!

The market was particularly buoyant despite the pandemic as home movers wanted greener pastures, more space, and a change in lifestyle. We expect this to continue at pace in Q1 of this year as home buyers rush to beat the Stamp Duty relief deadline at the end of March.

Even after this point we expect the housing market to remain strong as people continue to look for new homes as (hopefully) life moves back towards normal and more and more of us want a change of scenery after the lockdowns.

This then is a great time to invest, especially if you can move fast and get into the buy-to-let market before the Stamp Duty relief period ends.

Investing in Burnley and the North

We’re seeing a sharp increase in enquiries from people looking to put their money to work in Burnley and the North West thanks to a combination of low-cost housing stock and a high demand for single lets and HMO’s. We have more tenants looking for homes than properties available. This gives you the opportunity to get a high return on your investment right from the beginning of ownership.

How E&M can help

We can help you from start to finish, from sourcing the property through to completing any refurbishments and finding tenants. As Burnley estate agents we know the region in intimate detail and as seasoned investors ourselves, we know how to find you a great deal and maximise your returns. We’re also specialists in HMO’s so if that’s an area that interests you we can set you on your way to success.

Over the years we’ve helped hundreds of investors achieve their goals in property and set countless people on the right path to achieve financial freedom through property. If you want to find out more please contact the team on 01282 711560 or email sales@eandmps.com.