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.”