Both Gordon Brown and Alistair Darling have urged mortgage lenders to pass on lower mortgage interest rates
to home owners rather than making minor or no changes to mortgage rates. The Government is under pressure to introduce a further interest rate cut this month and will announce its decision on January 10.
The base rate was cut from 5.75 per cent to 5.5 per cent on December 6, and many hope a further cut will be introduced either tomorrow, or next month at the latest. And, while many mortgage companies did reduce rates following the last reduction – including Abbey Mortgages, Yorkshire Building Society and Standard Life Bank – others chose not to do so.
The Chancellor points out that mortgage lenders
would naturally increase rates if the Bank of England raised interest rates; therefore, a cut should also be passed on to consumers. However, the Council of Mortgage Lenders describes this link between base rates and mortgage rates as a "misconception".
Meanwhile, the latest Halifax price index reveals that prices rose unexpectedly in December – up 1.3 per cent – following declines in the previous three months. Prices for the fourth quarter fell 0.8 per compared with the third quarter, while December prices were up 5.2 per cent compared with December 2006 prices. The average price rose £11,759 year-on-year to £197,039 in December 2007.
Chief economist at Halifax, Martin Ellis, said: "Sound economic fundamentals and lower interest rates will support house prices in 2008." He added that house prices were likely to remain flat over the next 12 months.
Despite this, Fool.co.uk is predicting a decline in house prices and believes around 11 per cent of those looking to buy a home will speed up the process as a result. Of the people it surveyed that plan to buy a home, 38 per cent hope to do so in 2008, while 34 per cent are likely to wait until next year.
Head of personal finance at Fool.co.uk, David Kuo, said: "The long-overdue correction in the property market will allow many people who have been waiting to move house to finally realise their dream."
"Quite often people will ask how much they can borrow when they want to buy a property. But that is altogether the wrong question. Instead, they should ask themselves how much they can afford to repay," he added.
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