Bank of England cuts the Interest Rate to 0.5% – 5th March 2009
It sounds nice but who is actually going to benefit? If I lend you £100,000 and charge you 1% interest you pay back £1,000, if I charge you half that, now 0.5% well you will owe me £500. Of course you save £500 but that is not a great deal of money and should not be the deciding factor whether you can pay for you mortgage or not, should it? The mainstream housing market will be indifferent to today’s interest rate cut. It is not the cost of credit, it’s the availability of credit that is damaging the housing market.
Tracker mortgage owners will once again save more money however 46% of property owners own their house and therefore will not be directly affected.
People seeking to enter the market now will be faced with much higher rates of interest than those on old tracker mortgages, as lenders keep their margins much higher than they have in the past. More importantly, they find themselves unable to find the size of deposit needed to obtain a mortgage.
Savers are of course affected, their money effectively sitting in the bank and possibly being eaten away by bank fees. Another question is raised too. Are tracker mortgage owners, now with more cash in their bank due to reduced interest rates supposed to start spending again? Shouldn’t they be more prudent this time round and pay off even more of their capital? Let’s hope that is the message.
On a more positive note, the signs are that long term bond rates are now being driven down. This makes yields on real estate look ever better value and should fuel investor demand. The beneficiaries will once again be the equity-rich investor buyers who can benefit both from falling prices and the opportunity to gear up at advantageous rates. If this opportunity is seized it could, arguably, bring the first stage in a top-down market recovery into view.