What does a 0% bank rate mean for landlords?
The response to buy to let landlords asking how cutting the Bank of England base rate even more would affect them is probably not a lot.
The Bank of England is considering whether to cut the rate in half, down to 0.25% from the record low of 0.5%, where it has sat for more than three years.
However, the International Monetary Fund (IMF) has suggested the rate should be cut to zero.
The aim is to stimulate jobs and growth to boost the economy out of the current malaise that seems to be slipping back to recession.
The Bank has two tools that will do this job -
- Interest rate cuts aimed at lowering the cost of borrowing for business
- Quantitive easing(QE) – creating more money to circulate in the economy to kick start growth
Essentially they are different methods of achieving the same outcome.
The problem is more of the same is unlikely to work. Interest rates are already at rock-bottom and the Bank of England has spent more than £300 billion on QE, but the country is still hovering around recession.
QE and low interest rates over the past three years have also led to banks and building societies uncoupling their mortgage rates from the old ‘Bank of England base rate plus x%’.
Cutting the Bank of England base rate will not necessarily lead lenders to pass on the reduction because they moan that the borrowing is costs more on the wholesale money markets because of the Euro debt crisis.
The banks have also kept the money generated from QE to bolster their balance sheets in case bad debts and solvency rules undermine their capital bases.
The Bank of England probably doesn’t know what to do to improve the country’s finances – if the monetary policy committee had an inkling of what was required, they would have done it by now.
Interest rate cuts – don’t hold your breath if you expect cheaper buy to let borrowing.
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