THE European Central Bank decision to cut the base rate may signal a move from stringent austerity measures to a larger emphasis on growth.
As well as cutting the base rate, the ECB also halved the marginal lending rate, which is the rate charged to banks who borrow overnight funds at the ECB, reducing it from 1 per cent to 0.5 per cent. It has also extended its fixed-rate lending programme into next year.
How will this affect us at home? Perhaps it indicates that after four years of Bank of England base rate being at the historical low of 0.5 per cent, the rate is unlikely to increase any time soon.
The knock on of course being that for savers this will curtail interest rate improvements on their money but for borrowers perhaps more time to plan the repayment of debt.
We have also heard recently that perhaps as many as £1 million interest only mortgage borrowers have little or no plan in place to repay the capital at the end of the term.
Low interest rates could therefore give a window of opportunity to repay some capital by making overpayments, where possible, to shorten the term or maybe ready yourself for when interest rates do eventually increase.
I recall a survey from many years ago, conducted by Prudential, which suggested that a large percentage of people would look to downsize when in retirement.
The reality of course, is very different, hence the growth in equity release and home reversion schemes, where a percentage of the home is sold.
If better times are really on the horizon then prepare for the increased charge for borrowing as well as the potential for more than below inflation returns on savings.
l Dominic O’Brien is a Chartered Financial Planner and Director of Jamieson Christie Wealth Management Ltd. Please remember that the information given is for informational purposes only and is not intended to give or imply advice of any kind. Limits, terms and conditions may apply to one or more of the areas mentioned above. The value of investments and any income from them may fall as well as rise and you may not get back what you invested. The above is based on our understanding of the regulatory position as at April 2013.