There was a very interesting article that I came across in the telegraph recently. It was particularly of interest to me as I am one of the fortunate investors who have mortgage deals that are currently 0.79% below the base rate!
Yes! You read correctly – 0.79% below base rate!
The article said that if interest rates continue to fall (and it seems very likely that they will do so) without any changes to the terms of the loans/mortgages, then a bizarre situation could arise where the banks could end up paying the loan.
It will affect those who have tracker mortgages that are below the base rate. Whenever the base rate changes, so do the repayments on the tracker mortgages as well. This is because they are linked directly to the base rate.
Most of those with this type of mortgage pay the bank’s base rate and also a percentage on top. But in some cases (such as mine) the borrower pays the bank base rate minus a certain percentage.
So, if the bank base rate continues to fall further then these borrowers would then be paying ‘negative interest’ on their loans.
If this happens then the economy would move towards a bizarre, surreal situation where the lenders will have to pay the borrower! This is because the interest would then become negative.
There is no doubt that borrowers would then use a magnifying glass to browse over the small print and make the best use of the situation. Around 40-50,000 in all probability will start paying negative interest if the bank rate continues to fall at this pace.
Under such circumstances the lenders may not have any ground to stand on unless the terms and conditions of the mortgage cater for this scenario.
WOW! Now imagine the scenario – you have a mortgage with the bank and they are paying you interest for having a loan with them. Let’s see how much further the base rate falls!
Did you know?
An essential part of any property management software package is the ability to accurately track all your mortgage/loan repayments. Our landlord software solutions will make it fast and easy for you to track and manage all aspects of your loans.
