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BSA warns negative interest rates will hurt mutuals

The Building Societies Association has warned negative interest rates would hurt mutuals by cutting their main funding line of retail deposits, but brokers say it could bring a much-needed boost to the mortgage market.

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Bank of England deputy governor Paul Tucker told the Treasury select committee this week the monetary policy committee has discussed the idea of negative interest rates.

He said: “I hope we will continue to think about whether there are constraints to setting negative interest rates. This is an idea I have raised. This would be an extraordinary thing to do and it needs to be thought through very carefully.”

Building Societies Association head of mortgage policy Paul Broadhead says the move would “decimate” returns to savers, which would have a knock-on effect on the funding available to lend.

He says: “While we have the Funding for Lending scheme, the vast majority of mortgages in our sector are funded through retail deposits. Any fall in that, based on a fall in interest rates, would not be helpful. We would strongly caution against this as an idea.”

But John Charcol senior technical director Ray Boulger says the move could significantly boost the mortgage market.

He says: “Negative interest rates will increase the pressure to lend and the mortgage market would be a major beneficiary of any such action. This increases the likelihood of genuine cuts in two-year fixed rates as opposed to lower rates financed by higher fees.”


Second-charge loans reach four-year high

Secured loan lending reached its highest level in four years in January, according to data from secured loan broker Loans Warehouse. In January, £30.1m was lent to homeowners, the highest monthly total since January 2009, when £53m was lent. January’s figure was 20.9 per cent higher than the same month a year earlier, when £24.9m […]

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Size matters on capital adequacy

Although existing capital adequacy requirements sometimes get a bad rep for spoiling banks’ appetite for mortgage lending, such measures are vital to prevent a repeat of the calamitous collapses that saw the public have to bail out the banks during the global financial crisis. That said, it is important that we keep a watching brief […]


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