Negative interest rates: Mortgage expert suggests 'drilling down into terms & conditions'

It’s now been more than a year since the Bank of England Base Rate was slashed to 0.1 percent – a historic low. It’s been maintained at this level ever since, but there’s been plenty of speculation about whether or not interest rates in the UK may go negative.

Andrew Montlake, Managing Director of the independent mortgage broker Coreco, recently spoke to about the likelihood of this happening.

“If the economy really struggles as we emerge from the pandemic, there is a possibility that rates could go negative for the first time,” he said.

“I think conditions on the ground will have to be exceptionally challenging for the Bank of England to take such a drastic measure.

“We have seen market expectations move away from this recently, so at present it seems more unlikely.”

In the even interest rates did go negative, what would the impact be for those with a mortgage? Could it mean lenders end up paying borrowers?

For anyone who assumes this would be the case, the answer may be a disappointment for borrowers.

“If you’re on a fixed rate mortgage, which most borrowers are, there will be no impact at all,” Mr Montlake said.

“Your repayments will stay the same. Borrowers on tracker mortgages, or a lender’s SVR, may see their rates come down a little but they definitely won’t end up in a situation where lenders are paying them.

“Drill down into the terms and conditions on your mortgage and you’ll almost certainly find a clause, called a collar, that names the lowest level rates can go to.”

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So, if interest rates do go negative, what should borrowers do?

“If rates go negative, you’ll hear about it unless you live in the Australian bush or somewhere far up the Amazon,” Mr Montlake said. “It will be all over the news.

“The first thing to check is the terms on your mortgage to see if your rate will reduce or not.

“Some people, namely those on trackers or a lender’s standard variable rate, will likely see their mortgage payments come down if rates go negative,” the mortgage expert commented.

“This will clearly benefit them financially and mean that more of their monthly payment will go towards capital rather than interest.

“It will also mean that it is a better time to make regular overpayments.

“But for borrowers who are on fixed rate mortgages, everything will remain the same.”



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