Emergency interest rate cut!!
October 8, 2008
Today the BOE reduced base rates from 5.0% to 4.5%. Who says the Bank Of England is independent!!! This rate cut comes right after the government has announced the bail out of the banking system to the tune of £250bn and is the day before the board meets at the BOE to discuss rates. This is clearly a decision pushed through by government.
So who will benefit?
In the property market the only beneficiaries that will feel an immediate effect are those people with TRACKER mortgages. At this stage don't rely on lenders reducing their mortgage rates. One of the reasons that we are where are is because the lenders have loaned at rates that are now proving to be unsustainable so expect them to keep this rate cut benefit for themselves so that they can improve their position and become stronger in the future.
The downside is that savings rates can be expected to fall. This is not going to stop people saving where they have the cash to save.
If you are borrowing to invest in property be careful about the deal you buy for your mortgage. Paying a high fee upfront for a reduced monthly payment may not be the best solution. In these times cash flow is everything. It may be wiser to pay more each month and burn the cash slowly rather than to pay a 1.5% to 3% up front fee to get a deal especially as rates will fall over the next year and at some stage lending rates for mortgages will surely fall even if it is not now.
.................and if your current deal is coming to an end it maybe better to pay the Standard Variable Rate (SVR) rather then buying another deal and paying a substantial fee to get the deal.
This will not be the last rate cut this year thats is for certain and its just a case now of how far rates will fall. Don't be surprised to see BOE base rates down to 3.5% by next summer. This will probably be the time when there is a bit more cash to borrow from the banks and is most likely the time that deals that make sense start to arrive in the market. If this does happen look to FIX for the long term.
There are a lot of mortgage deals coming to an end over the next 2 years so the market is going to be busy but rates may not be that cheap.
We all need strong banks which is why we should not expect the cost of money to fall quickly. the banks just have to increase their operating margins.
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