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News Analysis: Decade anniversary of ultra-low rates rolls around

Industry agrees that move was sensible but remains split on legacy

It was a decade ago that the Bank of England decided to take what was seen as drastic action as the financial crisis continued to damage the global economy: cutting the base rate to 0.5 per cent. To put this into context, at the very start of 2009, the base rate stood at 2 per cent.

To mark the 10-year anniversary of this base rate cut, Mortgage Strategy asked some key voices if they believed it – and the cuts that followed – were the correct decision to take, and how it has had an impact on the mortgage industry over the past decade.

John Charcol senior technical manager Ray Boulger takes a positive view, saying: “What has happened since the rate cut has shown that it was the correct decision. At first it was a very dramatic change, however the market is now in a better place than it was 10 years ago.

“The decision to cut the rates as sharply as the BoE did was a surprise to many, as was the length of time that such measures would be taken for.”

Boulger adds that “most people predicted the rates would shoot back up; almost no one imagined the rates would stay historically low for this long”.

James Pendleton managing director Lucy Pendleton takes a similar view. “We were about to go into a freefall market if the rates had not been cut. I believe a small portion of people would have actually lost their properties if the BoE had not reduced its interest rates,” she says.

Brightstar Financial Group chief executive Rob Jupp also believes that it was necessary to cut rates. He says: “The global financial system was teetering on the brink. The bank had to help pull the economy back from the cliff edge.” He warns that, “now it is important that any increases are carefully managed”.

CLS Money managing director Clayton Shipton is also cautious about the future. “The BoE has spent too much time dithering about when to increase and is now stuck between a rock and hard place,” he says.

“If [the bank] increases rates too drastically, it risks another recession. At the same time, if another recession comes, they have run out of wriggle room to help, as they will have played the rate reduction card already. In the space of 10 years, saving [as a concept] has been wiped out because the returns are not worth it and instead low rates have created a nation that borrows and are used to borrowing at those low rates.

“Mention anything above 3-4 per cent and borrowers are not interested, even though their deposit and credit file warrants it.”

SPF Private Clients chief executive Mark Harris says: “Continued low interest rates cause complacency among borrowers so we [mortgage brokers] have had to become far more organised over the past 10 years.”

Boulger does not believe the impact of the rate cut was noticeable until the increased availability of mortgages occurred around 2013.

He says that the biggest change since the March 2009 rate cut has been “more people moving on to longer fixed-term mortgages”, which he believes is “accountable to the declining rate difference between two-, five- and even 10-year fixes”.

Pendleton believes that the base rate cut enabled first-time buyers to be more ambitious. “Lower rates have meant borrowers can take out a larger mortgage,” she says.

Jupp does not believe the biggest change in the past 10 years has even been to do with the low interest rate environment, however.

He says that the most significant development in the past decade has been “the emergence of the new specialist sector, which is growing to meet the changing needs of an increasingly diverse population”.

On being asked what the interest rate environment could look like in the next decade, Jupp opines that the base rate will rise marginally. Meanwhile, Harris expects to see the base rate at 2 per cent or lower.

Legal & General Mortgage Club director Kevin Roberts provides a neat summary: “Despite the upheaval and uncertainty we have seen since,” he says, “the mortgage market has shown just how resilient it can be when faced with change.”

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