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The next cut

6th January 2009 | back to article listings BACK    print this article PRINT

When Bank of England deputy governor Charles Bean stated in his recent interview with the Financial Times that he could not rule out the possibility of the base rate falling to zero, many people interested in investing in property will have pricked up their ears.

Much as the overall economic outlook may be gloomy just now, the combination of lower prices and cheaper borrowing will sound like music to the ears of those in a potential position to make more acquisitions.

While the deputy governor did state that the monetary policy committee had "some way to go" before there could be talk of a zero rate, the distance in question is expected to be much shorter before this week is out.

Two polls indicated a widespread expectation that this will be the case. Both Bloomberg's poll of 50 economists and a Reuters survey of 61 experts found a clear consensus in favour of a 1.5 per cent cut, a rate that would be the lowest in the 315-year history of the Bank.

In the Reuters case, 41 of the economists suggested a 0.5 per cent cut. There were three alternative suggestions, these being a one per cent cut (with 14 anticipating this), a 0.75 per cent reduction (tipped by four) and no change, which just two predicted. If this spread of views is anything to go by, should the prediction of a 1.5 per cent rate be incorrect, it is most likely to be because of an even larger reduction.

All this, of course, may seem a long way from the days of the five per cent interest rate, which was the case for several successive months in 2008 and remained so even up to the first week in October. This rapid plunge has opened up the prospect of cheaper mortgages. Controversially, not all lenders have passed on all the cuts, but some have and even this partial application offers better deals for many.

For investors hoping for cheaper borrowing, this week may therefore bring better news. The Reuters poll suggested it could yet be better, with the consensus being that the rate could fall to 0.5 per cent by June. In such circumstances, tracker deals may well be a good option.

Either way, the base rate is already in historic territory and is one cut away from setting a new record. As such, for those whose investment cannot be made as cash buyers, the chance to buy up property may be doing so at the best rate for centuries. The market could be in for a boost from investors seeking to take advantage of this one in 315-year offer.

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