Negative interest rates: What lowering rates could spell out for mortgages

Negative interest rates have been deployed in a number of other countries as a measure to provide an extra boost in difficult financial circumstances. And it now appears the option may be open to occurring in the UK, in the midst of the COVID-19 crisis. The governor of the Bank of England, Andrew Bailey, appeared to allude to the fact negative interest rates were being considered as a measure going forward.


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Answering a question from the Treasury select committee, Mr Bailey said all options were on the table.

He added: “Of course, we’re keeping the tools under active review in the current situation. We do not rule things out as a matter of principle.

“We’re very keen to observe how the economy responds to the rate cuts we have made.

“We have been looking very carefully at the experience of those other central banks that have used negative rates.”

But what would negative interest rates mean for mortgages? And would they have any implication on homeowners? spoke to Michelle Stevens, Mortgage Specialist at who provided more insight into this matter.

She described how negative interest rates would be likely to have a palpable effect on mortgages.

She said: “Negative interest rates would create further headache for savers, who are already struggling to find inflation-beating savings accounts and products at a time when the Bank of England interest rate is at an all-time low.

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“The most extreme scenario in a negative interest rate situation would see banks and other financial providers charge savers for holding their money.

“Although, the potential of mass deposit withdrawals does make this proposition unlikely.”

Whatever the outcome though, negative interest rates would create an unprecedented agenda in the UK for mortgages.

The impact is likely to be significant, and worth noting.


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Ms Stevens added: “In terms of mortgages, on the face of it, negative interest rates seem like a boon for homeowners.

“But while mortgage rates would drop for those on tracker mortgages – and there are far less of these available now – and for people signing up to new mortgage deals, the full effect of a negative interest rate would not be passed on by lenders.

“Furthermore, if you are on a fixed-rate mortgage – which many are – you will continue paying the agreed interest rate for the length of your deal.

“You will not see any change to your monthly repayments if the UK enters a negative interest rate situation.”

There is already precedent for negative rate mortgages, set by the Danish bank Jyske last year.

The bank effectively stated it would pay borrowers a small amount in order to take out a loan.

However, due to the market in the UK, analysts have widely suggested this would be unlikely to happen.

A number of other countries have applied negative interest rates more widely, although with differing effects.

In countries such as Sweden, Switzerland and Japan, negative interest rates were seen as a temporary balm to an ailing economy.

In many circumstances though, the effects were not passed on to citizens. 

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