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Rate hopes coming true

7th November 2008 | back to article listings BACK    print this article PRINT

Last month brought a flurry of dramatic activity as governments and central banks battled to save their financial systems from collapse, but there was somewhat less action from high street mortgage lenders. While the Bank of England's monetary policy committee (MPC) literally could not wait another day to drop the interest rate by half a per cent, many lenders did nothing at all in response.

For this reason, there has been concern that the same would be true this month, even as the MPC lowered the base rate by the largest amount since 1981. Insurance firm Legal & General commented: "The cut today is welcome, but sadly many borrowers aren't going to benefit," noting that banks are not obliged to cut standard variable rates and suggesting the track record of them in recent months would indicate no reduction this time.

Today the National Association of Estate Agents (NAEA) went on the offensive, declaring that banks who failed to cut their rates were going against the wishes of the whole country, be it the government, industry or homeowners.

It stated: "Those lenders involved in this damaging standoff should be ashamed of the lack of commitment that they have shown to helping house-hunters. The biggest problem in the housing market today is a lack of consumer confidence - and a clear commitment from all banks to pass on the full 1.5 per cent cut to customers would inject much-needed confidence into the system."

For this reason, it may have come as a surprise to some - but also a relief to many - that some of the leading lenders have decided to pass on the full cut. Abbey said it would apply this across its whole range of products. Halifax will do so as well from December 1st, while the Royal Bank of Scotland said the change has been made not just because of the MPC's actions but also because interbank lending rates are coming down.

This could be very good news all round. The NAEA concluded its statement by saying: "Reducing the rate will help send a clear signal to the market and allow fluidity of mortgages to be loosened - giving the market and the thousands of house hunters out there the positive impetus they need."

Of course, this does not mean everything will get better overnight. The country still faces the prospect of recession and the effect this will have on jobs and job security will deter some. But the cut may also provide the economic impetus required to limit the effects of the downturn and help both the economy in general and the housing market in particular get back on its feet that bit sooner. Perhaps the banks have realised that in the longer run, this could all be in their interests too.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/4468.html. Alternatively, please see our full press release archive.

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