Historically, it has always been the view of the Bank of England that the base rate set by this institution does have a minimum level. And therefore any decrease in base rates below the current rate would not be economically possible.
However, in more recent times, low inflation and poor expectations of wage growth have prompted the Bank of England, and banking institutions across the world, to review this thinking.
Which can only be good news for the borrower.
The Benefit of Lower Rates
As interest rates fall, the cost of borrowing for most will also decrease, meaning that home owners in particular can afford to borrow more than ever before.
This frees up vital equity in the home so that you can use the assets within your property to improve your standard of living.
Even if your own mortgage is based on a fixed rate, and therefore does not benefit from falls in the underlying base rate, further home owner loans that you seek could be considerably more cost effective following such a change.
Furthermore, as base rates falls, it is generally the case that the cost of goods also declines, therefore ensuring all homeowners have more money in their pockets, and greater spending power, even by the end of the month.
There would be no more paying unnecessarily high interest rates, simply because of a stipulation by a mandatory institution. If such a philosophy were to become reality, anyone with any type of debt could become better off.
Why the Change?
The key change in this philosophy has come from the experience of banks across the world.
As the economic climate improves, and banking institutions regain their strength, central financial organisations have discovered that reducing interest rates even further can bolster the country’s economy whilst still creating even greater financial stability for the future.
Even the Bank of England’s Chief Economist has said that, in his personal opinion, he believes the Bank of England could continue to reduce the base rate until it ‘nears zero’ if the current economic climate were to continue.
How to Make the Most of Low Interest Rates
In the UK, the Monetary Policy Committee (MPC) sits every month to review the current level of interest rates and decide if and when there needs to be a change.
However, the current base level of 0.5% has been in place since March 2009, with long term improvement in the economic climate during this time a proven reality.
Therefore the concept of seeing further declines in base rate to improve consumer confidence and add further power to the economy could be very much on the cards. And while this is the case, those that wish to take out homeowner loans to improve their own houses or to make their own circumstances a little easier, have a real possibility of getting some very good deals.
If you wish to use the value of your home to realise a life-long dream, or improve your standard of living, then now may very well be the time to do it.
Harry Price is a writer who lives on the south coat. In his spare time, he paints landscape pictures inspired by his coastal surroundings.