The property industry has cautiously welcomed today’s cut in official interest rates to 0.5%, but has warned that it will make it even harder for financial institutions to lend.
The Bank of England announced today that it has cut base rates by 50 basis points to 0.5% – an all-time low.
Jennet Siebrits, head of residential research at CB Richard Ellis, said: “The housing market is not being helped by constant base rate cuts.
“Ultimately, there is a danger that people could enter the market when interest rates are low and get into difficulty when they start to rise again, taking their mortgage repayments with them.
“Furthermore, this latest cut will only add to pressure on the savings rate, making it even harder for financial institutions to lend.
“The MPC is taking direct action to address market illiquidity by embarking on a programme of quantitative easing, but this inflationary approach is risky and reliant on the banks passing on this extra liquidity.”
Jones Lang LaSalle said today’s decision was widely anticipated as the economy is facing its worst recession since the early 1980s, with the Bank of England forecasting GDP to shrink 3% this year.
James Thomas, head of residential development and investment, said: “Today’s decision to cut interest rates to 0.50% will be positive news to homeowners on variable rate mortgages, although lenders have indicated that they are unlikely to pass the full benefit on to borrowers.
“Given that banks have little appetite for new lending, it will make little difference to homebuyers hoping to enter the market, whose main difficulty is actually securing a mortgage.
“Mainstream house prices are expected to fall by another 13%-15% this year and a further 1%-3% in 2010 before recovering in line with the pick-up in the economy.”
JLL head of forecasting and economics, Fergus Hicks, said occupier demand for commercial premises was being hit hard by the recession.
“Occupiers are reducing headcounts and implementing cost control measures, which means that expansion is off the corporate agenda,” he said.
“The recession is also forcing occupiers to dump secondary space back on to the market, deepening the downturn.
“We expect commercial rents to fall approximately 25% from their peak in early 2008 by end 2011.”
Knight Frank’s head of residential research, Liam Bailey, said the decision to cut rates will have little immediate impact and, instead, the government’s recent decision to force the nationalised banks to lend will probably do more to revive lending than any change in interest rates.
“With Northern Rock now committed to lending £14bn, and the Royal Bank of Scotland committed to a further £9bn, it is likely that mortgage volumes will begin to increase and loans will become available on less onerous terms,” he said.
David Adams, Chesterton Humberts head of residential, said this cut will have no further positive effect other than to reduce the value of the pound and make UK property even more affordable for European and North American buyers.
