The Bank of England launched a massive stimulus package yesterday in a bid to save Britain from recession. The Bank’s monetary policy committee (MPC) voted unanimously to slash interest rates to an all-time low of 0.25 per cent.
Take a look at the winners and losers of the rate cut:
WINNER: Property investment
The cut to interest rates is set to attract more buy to let investors to the market, says Ludlowthompson, the estate agent. Stephen Ludlow, chairman of Ludlowthompson, said: “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.”
Weaker sterling means bricks and mortar is cheaper for international investors who want to buy into the UK market. That then spells great news for developers and sellers.
Monetary policy is proving to be pretty unpleasant medicine for pension schemes according to Tom McPhail, head of retirement policy at Hargreaves Lansdown. He said: “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.” The deficits of beleaguered pension schemes could rise by another £30bn on the back of falling rates according to JLT.
“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,” said David McCorquodale, UK head of retail at KPMG. For those looking to re-mortgage switching to a new lender could save them thousands of pounds, experts say.
“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,” said KPMG’s McCorquodale.