Assetz® News - How many cuts?

How many cuts?

9th October 2008 |

Today could have been the day that the Bank of England announced its first base rate cut since April. Many expected it would be, while none anticipated the unprecedented announcement of concerted action by central banks around the world that was announced yesterday.

With that announcement and the unveiling of the government's package to provide capital and liquidity to the banks yesterday, the dust may take some time to settle. In the first instance, observers will be keen to see better signs of activity on the stock markets, in interbank lending rates and ultimately in economic performance. But in the midst of the hopes for an easing and eventual end to the credit crunch, the property market in Britain will be hoping as much as anything else that the base rate reduction will be passed on to more than just the holders of tracker mortgages.

Robin Bartlett, the chief executive of estate agency Chesterton, this is a key point. He said of yesterday's moves: "From a UK property perspective, in order for such unified action to have a positive effect on the market, the rate cuts must be fed through to current mortgage holders. The lending doors must also be opened to new buyers and to those needing to remortgage."

Similar sentiments were expressed by Stewart Baseley, the executive chairman of the Home Builders Federation, who stated: "I hope that the Chancellor will ensure that banks now start to restore mortgage lending to more normal levels."

The good news so far is that some lenders are doing just that. Barclays announced the cut will apply to all tracker and standard variable mortgages from November 1st, with Woolwich head of Mortgages Andy Gray commenting: "Today's move to reduce mortgage payments is good news and will instil confidence, helping customers with their finances."

In another announcement, the Royal Bank of Scotland and Natwest also revealed a passing on of the 0.5 per cent cut.

Such actions and similar ones that may follow from other lenders could help the mortgage market substantially, particularly if the new liquidity measures announced by the government succeed in bringing down interbank lending rates.

Yet there may be more. Giving its verdict on yesterday's events, the Royal Institution of Chartered Surveyors predicted that the base rate will be reduced again in months to come, falling as low as 3.5 per cent. This was based on the view that, despite the decisions made this week, at least a short recession cannot be avoided.

However, the fact that the monetary policy committee (MPC) may still have such scope to lower rates (a similar reduction by the US Federal Reserve would take their rate to just 0.5 per cent) could spell good news for investors and house buyers. The question this week is how many cuts to mortgages can be enjoyed because of banks passing on what the MPC did this week. But the question for the next few months could be one of how many more there will be.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/4418.html. Alternatively, please see our full press release archive.