AMI Claims Cut In Interest Rates Would Help New Loans
After some speculation last week about the possibility of the Bank of England cutting the base rate of interest to a negative level, the Monetary Policy Committee (MPC) decided in their meeting last Thursday to keep the current base rate of interest for loans and savings on hold at 0.5 per cent for another month.
Whilst this move was generally widely expected amongst experts in the housing and homeowner loan markets, the Association of Mortgage Intermediaries (AMI) has claimed that a cut in interest rates would help borrowers and encourage banks and building societies to offer more loans to potential home buyers, thereby assisting recovery in the housing and homeowner loan markets.
Many banks and building societies have been accused of holding onto the cash they have received from the Government, in order to restore their balance sheets and attract interest on the capital. If interest rates were to become negative, lenders would actually have to pay the central bank for any money they held and the AMI, amongst others, believe that this would be sufficient incentive to encourage banks to offer more loans to customers at more reasonable rates.
Robert Sinclair of the AMI said “The “steady as she goes” interest rate policy set by the Bank of England underlines the issues facing UK consumers. Banks are still constrained in their ability to lend to consumers and small businesses. While the quantitative easing programme is welcome, its results are not immediately visible and are not directly assisting public confidence.
First time buyers and those on higher loan to value mortgages are still in very difficult positions and more needs to be done to assist those groups who will be crucial in ensuring we speed the economic recovery. A further cut in interest rates, indeed a move to negative rates as suggested by some commentators, might well force banks into lending more. This would assist in promoting the recovery that is showing early indications of arriving.”
