On Thursday 4th August, the Bank of England cut interest rates from 0.5% to an all-time low of 0.25%, the first time the rate has changed since 2009.

Mark Carney, the Governor of the Bank of England, said lenders “have no excuse” not to pass on the rate cut, having also made additional funding available for banks and building societies at very low rates on the condition that savings are passed on to borrowers.

What impact will the rate cut have? 

• Gibraltar lenders are likely to lower mortgage interest rates for buyers and those who are re-mortgaging

• Existing mortgage holders on variable rate or tracker mortgages should see repayments go down 

• Further downward pressure on sterling (GBP) – see below

• Savings rates will fall, incentivising savers to invest in other assets, including property, in order to achieve a better return on their money

• Consumers should benefit from lower interest rates on credit cards and loans

What impact will the fall in GBP have? 

• Gibraltar (and UK) property will be cheaper for buyers from non-GBP denominated countries

• Employees of Gibraltar companies earning in GBP but living in Spain will continue to feel short-changed each month that they exchange their pounds to euros  

• Imports from non-GBP countries will increase in price

• Exports from Gibraltar (which tend to be services more than goods) will appear to be cheaper in non-GBP countries

Why has the Bank of England lowered the base rate? 

• To boost the UK economy and encourage banks to lend

• To give people and businesses in the UK the confidence to spend and invest

• To keep the UK housing market moving and mortgages affordable

What next for interest rates?

While there are many factors involved in trying to predict how long interest rates will stay at 0.25%, the Bank has also indicated that it may soon cut rates again, to “close to zero”. This will incentivise banks to lend and should mean mortgages stay highly affordable for the foreseeable future. However it seems very unlikely that the Base Rate will enter negative territory, as has happened recently in some European countries and Japan.  Regardless, 0.25% is an enticing rate for property investors in Gibraltar and beyond.