Barrel Strength

The continuing decline in interest rates in UK, the lowest since the Bank of England was formed in 1694, could lead to financial events that were never contemplated.

Lawyers suggested that if rates dropped further, borrowers could end up having their mortgage paid for them by their bank.

Eddie Goldsmith, of property law firm Goldsmith Williams, said: “This interest rate cut is bringing lenders and borrowers perilously close to a bloody conflict.

“Many lenders will never have taken into account the prospect of such a drop in rates and will have their lawyers scurrying back to their offices to look at the small print of their mortgage conditions as the prospect of having to pay their borrowers is to awful to contemplate.”

The majority of borrowers with a tracker deal pay the bank rate, plus a percentage on top. But some deals available just over a year ago allowed borrowers to pay the bank rate minus a percentage.

If the bank rate falls much further, these borrowers could be paying negative interest on their mortgage.

In a world where the word “unprecedented” is bandied about recklessly, this is truly unprecedented and mind boggling.  Theoretically the rates can go negative in a deflationary environment, but nobody expected it to be that way in practice.