Copy article

Ultra-low interest rates set to return

Journalist: Jake Carter, Mortgage Introducer

ended 14. April 2023

The International Monetary Fund has said ultra-low interest rates are set to return, with inflation due to tumble in the near future. 

Is this something you are expecting to see? If so, why? If not, why?

How low do you believe interest rates will fall in the medium to near term?

Are you expecting for inflation to fall in the near future?

6 responses from the Newspage community

Copy all

Copy

Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The IMF have a similar success record of Boris Johnson as Prime Minister when it comes to economic predictions. Inflation will fall, interest rates will decline, the property market will crash, but rates will never return to near zero. By the end of next year they will be at their lowest and this will be around 2.5%. Any lower and they wouldn’t be a tool to use in an economic emergency like another 2008.
Copy

Editor
Mike Staton
Director at Staton Mortgages
By the end of the summer, I expect to see lenders offering mid to low 3% rates on 2-year fixed rates. Inflation is not consumer driven and we will start to see a tumble now fuel prices are falling, more pressure needs to be applied to these fuel companies to ease the burden on the public. Once again the banks will win, as many homeowners who panicked to sign up for long-term deals at 6% will be rushing to pay the early repayment charge to get a more reasonable rate. One would think this was all planned by the banks
Copy

Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
The period of ultra-low interest rates came about in 2008/2009 as a response to the global banking crisis, it was a required reaction to prop up the economy and stop catastrophic constraints on lending. This was great if you were borrowing money, but was terrible for those with savings, who saw the value of their funds drop as inflation increased. The Bank of England has always said that the ultra-low interest rates should be seen as a short-term solution to a global problem and had projected the base rate to rise over time back towards a level of around 3-3.5% by the mid-20's. The last administration's disaster of a mini-budget upended that plan and the base rate shot up higher and quicker than the Bank had ever planned, but the end result is we are now in a place where the Bank could lower the central rate to that 3-3.5% level and borrowers will still feel it's a good deal, but crucially as will savers, rather than dropping back to sub-1%.
Copy

Graham Cox
Director at Bridging Hub
Personally, I think the IMF are way off base here. Going back to near-zero interest rates again would be madness, adding further fuel on the fire of overpriced asset classes like equities and property.

This feels like a tipping point, a long-overdue reset to relatively normal rates. Perhaps they'll come down to 3-3.5% when inflation is tamed. But I don't see them falling below that level.
Copy

Amit Patel
Adviser at Trinity Finance
The IMF is living in cloud cuckoo land, inflation will come down towards the end of the year, and interest rates will decrease but not to the levels they expect. We have more of a chance of the dodo coming back from extinction than we have of ultra-low interest rates. I expect rates to fall to around 2% but can't see them falling lower.
Copy

Samuel Ewen
Managing Director at Rosehill Financial Services
I do think that interest rates will fall from where they are now due to a drop in inflation, but I don't think we'll be seeing sub-1% rates anytime soon. The idea of the Base Rate is that it can be used as a tool to boost the economy in tough times, like a big recession or unforeseen circumstances like Covid.

While it negatively impacts mortgage borrowers, it's a good thing that the Base Rate has increased. The Bank of England had no wiggle room to reduce the Base Rate from 0.1%. Plus, ultra-low borrowing generally results in higher inflation, increasing the cost of living. It's also a factor that can result in house prices increasing at a faster rate, making it even tougher for people to get onto the property ladder.