Low Interest Rate Trap After Coronavirus Lockdown

Published / Last Updated on 09/06/2020

The Bank of England has cut interest rates to just 0.1%pa during coronavirus lockdown and looks set to potentially move to negative interest rates sooner rather than later to stimulate the economy post coronavirus and during the coming recession.

Low mortgage interest rates will be very attractive and you should consider them but be very careful about the terms that you secure.  Low interest rates will mean:

  • Cheaper borrowing costs
  • Lenders may lend you more as affordability may be much easier with lower rates.

Be careful!

  • What happens when the economy recovers, inflation increases and therefore, interest rates go up?
  • What happens when your low interest rate period ends?
  • Will you be able to shop around or will your ‘affordability test’ fail with higher interest rates meaning you cannot shop around or even worse, you have to remortgage to a higher rate and cannot afford it?

You should only borrow, not just within your means today or with even lower interest rates but also plan for when rates do go up to ensure that you can afford it.

You should also take out valuable accident, sickness and unemployment insurances as we suspect more people may lose there jobs, not just during the pandemic but also in the coming recession.

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