The industry has cautiously welcomed the Bank of England’s decision to cut interest rates for the fifth month in a row.
Today the Bank announced it was bringing base rates down by half a percentage point to 1%, the lowest level in its 315-year history.
James Thomas, head of residential investment at Jones Lang LaSalle, said: “The decision to cut base rates again will be welcomed by homeowners.
“Rising unemployment is stifling demand and we expect more house price falls in 2009. The main things to watch for in terms of stabilisation will be an unfreezing of the mortgage market and an improvement in the jobs market. Neither of these is likely any time soon.
“In the meantime, trading volumes will remain thin, though shrewd investors may be able to take advantage of current conditions and pick up bargains from distressed sellers.”
“In theory this cut is good news for homeowners on variable mortgage rates, but banks are growing wary of passing cuts on. However, the impact of rate cuts on savers must not be ignored, particularly given the increasing reliance on deposit based lending.”
Liam Bailey, head of residential research at Knight Frank, said: “Reducing base rates on the scale of recent months would normally help to boost the amount of new lending. However, base rates at such historically low levels mean that the returns on savings have become negligible, discouraging large numbers of people from depositing money in banks.
“This lower cashflow is further discouraging banks from lending, exacerbating the problem the government is trying to solve. The cuts may help to stimulate the economy and therefore the housing market later this year, however – but this will not be apparent for at least six months.”
RICS chief economist Simon Rubinsohn said: “Today’s cut in the base rate may provide a small boost to the current weak levels of confidence in the economic outlook, but this decision urgently needs to be supported by other measures.
“There is still a real need to stabilise the economy and increase the supply of mortgage finance to ensure an orderly housing market. The various measures announced by the government should go some way to achieving this providing they are introduced as quickly as possible.”
Andrew Montlake, partner at mortgage broker, Cobalt Capital, warned that the base rate cut might even proved detrimental to the stalled housing market:
“There are real question marks over the effectiveness of this latest reduction, as while it will benefit certain borrowers, it will certainly not solve the broader issues in the lending market, specifically the availability of funds,” he said.
“In fact, this latest cut could even make things worse. If lenders cannot attract savers, the great thaw in lending that we are all waiting for could be further delayed.”
Miles Shipside, commercial director at Rightmove, said: “We have found that despite the doom and gloom, the majority of consumers hope to buy in the next year – though today’s cut is relatively insignificant to most prospective buyers, as reluctant lenders are placing other hurdles in their way.
“Lack of mortgage funding is the issue, no longer the level of base rates. If mortgage-lending criteria were relaxed, repayments would be cheap enough to tempt many more buyers back into the market as the combination of cheaper loans and lower property prices has transformed affordability compared to 12 months ago.
“Lenders are not yet in a mindset or financial position to fund a substantial increase in demand for mortgages.”
