How low could the mortgage rate go?
Dec 7th, 2008 | By admin | Category: Featured Articles
People who are on tracker mortgages, which track the Bank of England base rate, should be reaping the benefits of the new 2% interest rate. Those consumers who took a tracker mortgage could be seeing savings of 100s of pounds each month if the lenders pass on the impact of the cut.
Not all mortgage holders will be benefiting from the rate cut. Individuals with variable rate mortgages should see some benefit depending on how generous the lender is. Anybody who opted for a fixed rate will not see any benefit.
The 2% rate which we discuss in our article The UK cuts interest rates again is aimed at stimulating spend and kick-starting the housing market.
The Government are no longer doing everything they can to tackle inflation and are using rate cuts to prevent deflation. The question on every ones lips is how low can it go? Will the rate cuts stimulate the housing market in 2009? I think that the rate cuts will not have an immediate effect and we will not see the housing market return back to good health until 2010.
Economists still believe that 2% is not the floor rate and that we could see 1.5% early in the New Year. Some are saying that a 0% rate cannot be ruled out, with many more firms likely to announce job cuts after the Christmas shopping period is over. A 0% rate however will not mean free mortgages for consumers as the banks will still want to make some profit. Mortgage rates are usually set above the base rate; borrowers will still have to pay a certain amount every month.
Will an ultra low interest rate reignite the housing market? It’s been a sharp fall after over a decade when house prices rose at a phenomenal rate. Some year’s house prices rose 20%. With a reduction in buyers, due to restricted lending the demand is lower meaning houses sell for less. Surveyors are valuing houses back at the 2006 valuation.
Sellers are obviously resistant at marketing a property at what it was worth 2 years ago but if your property has been on the market for 6 months it just won’t sell at what it was put on for back in April. Although one thing to bear in mind is that if you are purchasing a property the property you wish to purchase is also likely to have seen a fall in price.
Only seven out of the top-ten lenders in the UK have announced rate reductions following the cut in the base rate. Northern Rock, Abbey and Alliance & Leicester have yet to follow suit. This week, the Chancellor is likely to meet bank chiefs again to relay the Government’s message that all banks are expected to comply.
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