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The Challenge of Lower Interest Rates


It has always been assumed that Mortgage Rates can only go so far, but it seems that every week now lenders still seem to find that little bit more to shave off some quite frankly, ridiculously priced products.

Initially I must admit I thought Governor of the Bank of England, Mark Carney was maybe wrong to have acted so early, but in retrospect he probably did the right thing, especially as he really had talked himself into a corner. If he hadn’t have therefore acted then the banks credibility, which is the most important thing for any central bank, would have been at risk.

I was amused to see him subsequently hauled over the coals by MP’s who had a go at him for doing something that looks like it will help contribute to us avoiding a recession. Had he done nothing and we did go into a recession he would no doubt have received even worse treatment, so it seems that central bankers just can’t win!

So whilst short term this decision provided a bit of a boost, of course with any interest rate change there are always two sides to the coin.

Whilst borrowers may be whooping with delight at the prospect of lower interest rates, savers have been wringing their hands in anguish for rather a long time now and feeling quite rightly hard done by.

Where mortgage rates are concerned, despite the fact that there are still many lenders who have not passed on the rate cut, much to Carneys dismay, we have seen a new breed of even lower products start to emerge, especially where longer term fixes are concerned as Swap rates plummeted pretty dramatically over the past couple of months.

At the end of April 5-year money stood at 1.14% and 10-year money at 1.55%. Now they are 0.48% and 0.74% respectively! That is some fall and they are now at levels that have not been seen before.

When you see 2 year fixes below 1%, 5 year fixes routinely below 2% and 10 year fixes at 2.39%, even 90% LTV rates around the 2% level you do have to start to wonder how much further they can go.

It is still a little unclear as to whether there will be a further cut in Bank of England Base Rate, perhaps down to just 0.1%, which will cause some issues for lenders as they seem to be at the point where they are loath to cut too much further. Already some seem to be suggesting that their profit margins will be cut too much, despite increasing competitive pressure and new lenders coming into the market.

With not all lenders passing on the rate cut to their customers last time round it seems any further cut will attract even more of a mooted response, despite the protestations of Governor Carney.

On the other side you have issues around saving for a deposit which is hard enough at the best of times, without having to deal with miniscule interest returns making more people wonder whether they should even bother at all.

Also it does get harder for those lenders who need to attract savers money in order to be able to lend out, so it is a fine balancing act.

Of course in this game you never say never and if SWAP rates do fall further then we could see even cheaper deals than we already have. The real danger is that we are all getting used to this level.

Sometime in the future rates will need to rise and we have to guard against that eventual shock by being vigilant now and making sure we are not leaving borrowers exposed.



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Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

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