Relief all round as BoE reduces rates

Published 11th Apr 2008

The Bank of England has lowered interest rates to 5% from 5.25%...
The quarter-point cut is the third since December and comes amid signs of gathering economic gloom, with figures earlier this week showing that house prices fell 2.5% last month - the biggest monthly drop since the property crash of the early 1990s.

The decision will be a welcome boost to cash-strapped borrowers, already under pressure from soaring inflation. Monthly repayments on a £100,000 mortgage will fall by £16 if lenders pass on the cut in full, reducing them from £722.80 to £706.77 a month, based on a new rate of 7%.

Dan Johnson, Managing Director of TheMoveChannel, welcomed the cut with a hint of caution: "Although the cut in rates is a welcome move from the Bank of England, it remains to be seen whether lenders will follow suit and reduce the cost of borrowing for mortgage customers.

"The lack of credit in the commercial market has forced up borrowing costs for banks, just one reason why the previous rate cut led to little or no reduction in rates from most mortgage lenders. It would be tough on customers if they repeated that move this time round, so hopefully they will react more positively for borrowers this time round.

FTBs still restrained
David Bexon, Managing Director of SmartNewHomes.com, welcomed the Bank’s decision: “Today’s decision to cut interest rates to 5.0% should be welcomed. However, we now need to see the Bank of England take steps to improve levels of liquidity in the market if it is to make any significant impact on today’s borrowers.

“Gross lending fell by as much as 7% in February, in part as a direct result from the reduced number of mortgage offerings currently in the market place. A number of first time buyers are still willing to buy but they are being restrained by the lack of mortgage products now available - this needs to change if we are to keep the market moving.”

House price stabilisation?
Robert Bryant-Pearson, Chief Executive of Allied Surveyors, expressed relief at the rate cut: “Today’s rate cut of 0.25% will come as a relief and signals that the fear of a recession is greater than the fear of inflation. The credit squeeze is already exerting a greater effect on consumer spending than the rate cut.

“Inflationary pressures are not consumer led, but are because of price-push inflation caused by oil prices and the strong euro. Although certain sectors of the property market will see a downwards adjustment, this will contribute significantly to overall house price stabilisation.”

Minimal impact on housing markets
Mike Ratcliffe, Chief Executive of Wolsey Securities praised the BoE for its positive action: “The reduction in the interest rate today is a positive move, but I anticipate that its impact will be minimal on the housing and finance markets at the moment.

“The key issue which needs to be addressed is how to put liquidity back into the financial market. Until positive steps are made by the combined efforts of the bodies able to influence the situation, consumer confidence won’t be restored and the financial squeeze will be maintained. It is up to the Government to drive through a strategy that will tackle the liquidity problem head on”.

Source: ' Move Channel Ltd '

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