If it’s a variable rate mortgage – a tracker, or a mortgage on or tied to a lender’s standard variable rate – the rate could drop a bit if the base rate is reduced. But the drop is likely to be limited by the terms and conditions.
Older mortgages often have a minimum rate specified in the fine print. The National Building Corporation, for example, will never cut the rate it tracks below 0% on mortgages entered into since 2009 – so if your mortgage is at prime plus 1 percentage point, it will not fall. never below 1%. Santander specifies in some mortgages that the lowest rate it will ever charge is 0.0001%.
You’ll have to dig up your papers to see how much your mortgage rate could drop.
Will the new mortgages be free?
In Denmark, borrowers have been offered mortgages at negative interest rates. Jyske Bank mortgage customers received money at a rate of -0.5%, meaning that the amount they owed fell each month more than the amount they paid back. There is no reason why UK lenders could not follow suit.
What happens to my savings?
Savings rates in the UK have already been affected by the two base rate cuts in March, and many easy-to-access accounts at big banks pay just 0.o1% interest.
Some banks charge current accounts already, but you’re unlikely to be forced to pay soon to keep small amounts on deposit – despite the low base rate, it’s possible to earn 1% or more on a savings account fixed term.
High net worth savers will likely be the first to face a charge. In 2019, UBS began charging its ultra-rich clients a cash savings fee of over € 500,000 (£ 449,000), starting at 0.6% per annum and rising to 0.75% on deposits over important. And at Jyske Bank, similar fees apply.
What about my pension savings?
Negative interest rates are bad news for pension funds. If you have a defined contribution plan, you may find that the expected value at retirement decreases and you need to invest more if you have a target end date in mind. This is also a bad time to buy an annuity to provide retirement income, as retirement returns decline when rates are negative.