On Thursday, the Bank of England announced a vigorous stimulus package putting property investors in a positive mood. Find out who the real winners and losers are from the Bank’s decision to cut the rates.
Governor Mark Carney announced on Thursday that the Bank will be cutting interest rates from 0.5% to 0.25%. This cut represents a record low in the country’s history and also marks the first drop since 2009.
On top of that, Carney also announced additional measures to stimulate Britain’s economy. These measures include a £100bn scheme to force banks to pass on the low interest rates to households and businesses.
But who are the overall winners and losers when it comes to the latest cut in interest rates.
YAY: Property investment
Estate agents Ludlowthompson expect an increase in interest from buy-to-let investors following the interest rate cuts. Stephen Ludlow, the agenct’s chairman, says: “A low interest rate environment is inevitably going to boost buy to let. Those storing cash risk seeing its value fall over time, whereas London’s buy-to-let market has consistently outperformed. Although the market had already started to signs of recovery from the shock of the Brexit referendum, the interest rate cut provides a much needed boost.”
The currently slightly wobbly pound, which has experienced a fall of 1.5% against the dollar since the BoE’s announcement, makes bricks and mortar a tempting – and cheap – opportunity for foreign investors, especially those already keen to invest in the British market.
In return, the increase in investor interest lifts the spirits of British developers and sellers.
NAY: Savers
David McCorquodale, UK head of retail at KPMG, explains the situation savers will now find themselves in like this: “For saving pensioners – who are not earning much on their savings as it is – the rate reduction is likely to leave them slightly worse off and subsequently they will feel a slight squeeze on purse strings.”
YAY: Borrowers
KPMG’s McCorquodale says: “For borrowers, mainly mortgage holders, the rate reduction will be good news, but it will take time for any benefit to trickle down with many mortgage holders having opted for fixed-term mortgages of 18 months to five years.”
Savvy investors who are looking to re-mortgage might want to consider switching to a new lender and could therefore end up saving thousands of pounds.
NAY: Pensions
Pensions haven’t had the easiest of rides in recent times and monetary policy goes on to be an unpleasant medicine for pension schemes. Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: “It may be supporting asset values and keeping the economy turning but it is also driving down annuity rates and driving up final salary scheme liabilities. This means employers are having to pump more and more money into final salary schemes and individuals are having to save more and more. Too much of this medicine is not healthy for anyone’s finances and for final salary schemes in particular, there is a risk that it may actually be killing the patient.”
Source: ia-property