Question 1

What are negative interest rates?

Accepted Answer

Negative interest rates are when central and commercial banks, as well as building societies or other lenders, set their negative rasters below 0%. The Bank of England Base Rate has never dropped below 0.1% (which is where it is in 2020/2021 and likely for most of 2022), but interest rates in other countries have dropped below 0% for sustained periods of time. In essence, negative interest rates should deter savings and holding low-risk assets - the return is 0% or under. Instead, investors would be better off looking to borrow cheap debt to pursue higher-risk, higher-return investments, thus stimulating the economy.

Question 2

What do negative interest rates mean for savers?

Accepted Answer

In theory, a negative interest rate might mean that banks charge you to hold your money. The concept seems quite ridiculous and is unlikely to occur. It would be better to simply withdraw the money and stash it in cash. Conversely, it might also mean banks pay you to borrow money, which did happen once in Denmark. Lending would become very cheap - mortgages would cost next to nothing in interest payments.

Question 3

What do negative interest rates mean for property?

Accepted Answer

Negative interest rates should stimulate property ownership and investment sine there is no benefit to keeping money in low-risk options like savings accounts or bonds. The returns from property should be much higher. This causes property prices to increase - that’s the whole point of setting low-interest rates - to encourage spending and increase prices towards a more reasonable level of inflation. What tends to happen, however, is that property inflates at a more-than-reasonable rate under low-interest rates and prices come down quicker than expected when interest rates begin to rise.

What Could Negative Interest Rates Mean for Commercial Property?

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What Could Negative Interest Rates Mean for Commercial Property?

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