Boom for mortgage buyers as borrowing rates return to their lowest ever level

11/03/2020 16:00:37

By Archie Love

While the economic impact of the coronavirus continues in a negative direction, there is some good news for homebuyers with borrowing levels returning to their lowest rate in history.

The decision by the Bank of England to cut interest rates from 0.75% to 0.25% is intended as an economic stimulus to compensate for the sudden recent decline in economic activity caused by measures being introduced to control the spread of the virus.

With people in affected countries being urged to stay at home if they are experiencing flu-like symptoms, spending levels have plummeted and with them the amount of money circulating in their economies.

The theory is that lower interest rates should encourage people to spend more as it will cost less to borrow, with the big winners being those on variable and tracker rate mortgages who stand to save around £25-a-month for every £100,000 they borrow.

While the rate cut will take a week or two to filter through to the real economy, the likelihood is that we’ll also see a drop in fixed-rate mortgages, which means it will be a very cheap time to remortgage.

In Glasgow the main concern is not around the cost of borrowing – the property market remains buoyant with plenty of activity – but rather a chronic shortage of housing stock.

The effect is that there’s greater competition for the properties and do come onto the market, with bids being made far in excess of asking prices and Home Report values.

At Scottish Property Centre we saw a decline in activity in February following one of the busiest Januaries on record.

This could have been down to the market naturally righting itself following a post-election spike, or it could have been as a result of consumer reticence as public concern over the virus took grip. Or possibly it was a combination of both.

Whatever the cause, it’s heartening to see the Bank of England act quickly and decisively to encourage spending. The Bank also plans to relax capital rules to increase lending power, following the lead of other central banks including the Federal Reserve.

A statement said: “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove sharp and large but should be temporary.”

Archie Love is a Director of Scottish Property Centre Motherwell

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