Base rate cut of 0.5% 'could do more harm than good'

08 January 2009 / by Rebecca Sargent
Director at Fairinvestment.co.uk, James Caldwell comments on the Bank of England's decision to cut the base rate by 0.5 per cent -the lowest level since records began.

"Today's interest rate cut of 0.5 per cent comes as no surprise as the Bank of England and Government try to ease the pressure on households and businesses. However, savers and pensioners are inevitably going to suffer as rates edge even closer to zero.

"Savings accounts and ISA rates have already fallen, so this will be another blow to those using interest from investments to supplement their incomes.

"Meanwhile, despite the fact mortgage rates have fallen, lenders are still very reluctant to lend to people unless they have a substantial deposit. A quarter of all available mortgages now have a loan to value ratio of 60 per cent* making life very hard for first time buyers seeking to get their foot on the property ladder.

"Until the mortgage market becomes first time buyer friendly, the housing market is unlikely to recover any time soon. More pressure should be put on lenders by the Government to relax lending rules as well as reducing interest rates."

*Data compiled by Moneyfacts