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Record breaking rate may be good for investors

8th January 2009 | back to article listings BACK    print this article PRINT

Until recently, not many people will have been aware of the historic significance of the year 1694. While it was the birth year of the philosopher Voltaire and saw the death of Queen Mary II, the most significant economic development was the formation of the Bank of England.

This date became widely reported last month when it was noted that during the whole of the intervening 315 years the base rate has never been lower than the two per cent to which the monetary policy committee (MPC) had just reduced it. Only for a few months in 1951 had it been that low.

Now the record has been broken. As widely predicted by economists (such as the majorities surveyed by Bloomberg and Reuters about the decision), the MPC has now trimmed the rate by 0.5 per cent to 1.5 per cent.

For investors, the hope will now be that lenders will respond by passing on the cuts. Should they do so, borrowing to invest should be much cheaper, although the resistance of many lenders to lower their own rates has been widely reported.

Even so, a few better deals will help at least some investors, as of course would a wider recovery of confidence in the market. Commenting on the possibilities, National Association of Estate Agents chief executive Peter Bolton King argued that if lenders passed the rate on and the government were to suspend stamp duty as well, this would "open the door to recovery".

Some pessimists would question that, but given that so much government intervention has taken place already in terms of liquidity measures and bailing out banks, there could be more action yet.

Such a point was made by the Association of Mortgage Intermediaries (AMI), whose director Robert Sinclair said that the cut alone will not resolve the liquidity issue.

However, he noted, others agree, something that may ensure action is taken. Mr Sinclair remarked: "It was heartening over the last 24 hours to see widespread agreement with AMI's position that much more needs to be done urgently. We have consistently called for concerted action over the last nine months to address the underlying issues in the market."

So while the base rate cut may provide one good reason for investors to be optimistic, it seems increasingly clear that more action will not only be needed, but also be forthcoming. An easing of the liquidity situation combined with lower rates could open up to investors a healthy supply of cheap money that may help them make that next purchase. Moreover, it may be one that is made at just the right time, for such a boost in credit could herald the start of a recovery in the property market.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/4571.html. Alternatively, please see our full press release archive.

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