Will the interest rate decision affect selling an endowment?

The Bank of England yesterday confirmed that interest rates are to stay at 0.5 per cent this month. Aside from this, the Bank also confirmed it is to extend its quantitative easting programme by a further £50 billion.

While the Bank of England has now kept interest rates at 0.5 per cent for months, steps are being taken in other areas to try and improve the country's economy.

A low interest rate may be beneficial for some borrowers, thanks to the effect it has on commercial banks' interest rate charges. However, while low rates may ease the pressure for some, others may have taken steps to reorganise their mortgage borrowing.

Some people with underperforming endowment policies have chosen to sell their policy in order to reorganise their borrowing, said Chris Radford, chief executive of aap, the country's leading buyer of endowment policies. Others who had considered disposing of their underperforming endowment may not have realised that selling the policy is another option that may be available.

Mr Radford said that should aap decide to make an offer to buy, it would always pay more than the surrender value.

Lower interest rates may have helped consumers struggling with interest payments to some degree, although other efforts are being made by high street banks to repair their balance sheets.

Some may be restricting the availability of credit, the Bank of England noted in its statement confirming yesterday's decision.

While this may bring long-term benefits for the state of the nation's economy, individual consumers looking to make changes to their mortgage and debt arrangements may face a degree of difficulty.

However, different options are available. Some customers who were looking to rearrange their household borrowing because of an underachieving endowment policy chose to sell rather than surrender their endowment as part of their financial restructuring efforts, Mr Radford said.

Besides the interest rate remaining the same, other factors are affecting the current state of the economy. Consumer prices index inflation fell to 1.8 per cent in June, 0.2 per cent below the target level, helping to put less pressure on the purse strings.

The Bank has extended its asset purchase scheme by a further £50 billion to £175 billion - a move which the Bank believes will help to create stability in the medium term.

The full effect of this programme on the state of the national economy will take time to become apparent.

Source