What does todays BOE rate cut mean?
It’s been 9 years since the BOE reduced interest rates to a record low of 0.5%. Since that date most has have been speculating when rates would start to rise again. But today the Bank of England has gone the opposite way and reduced rates further to a record low of 0.25%.
In the recent light of Brexit and the falling pound means that inflationary pressures are already building up, and today’s decision could exacerbate them.
So what does this mean?
This long period of low interest rates is bad news for savers and in some cases has caused them to seek riskier investments for a better return.
It seems that property is a safer investment option with this announcement.
For those saving to pay a deposit on a future home, the interest rate cut will be frustrating. They will have to save for longer and this will impact the number of first time buyers acquiring their dream home.
In theory the Bank Rate cut should lower borrowing costs for households and businesses. Although as rates are so low at the moment some lenders may be reluctant to pass on this rate cut to the consumer or reduce deposit rates.
The Bank of England has released quantitative easing and a funding scheme to encourage banks to pass on this MPC cut to the consumer.
With interest rates so low we may begin to see a spurt of re-mortgaging with home owners taking advantage of the cheaper borrowing.
Like home owner’s investors will be hoping for the rate cut to be applied to current tracker, discount and even standard variable rate arranged mortgages. As far as future mortgage applications are concerned investors will be hoping the banks do honour rate and even loan to value (LTV) levels to leverage their positions better.
The lower interest rates and reduced unemployment makes it a great time to buy. This will boost the economy and encourage a renewed confidence in building firms to ramp up the creation of new builds.
We’d like to know your thoughts on today’s historic decision… Please comment below.