There has been a mixed response to the Bank of England's 0.25 per cent interest rate reduction, with many believing it will not be enough to prevent an impending recession. First-time buyers and people coming to the end of fixed-term mortgage deals will be among the most grateful for the change.
Some experts were anticipating steady rates until the New Year, so the cut has come as a welcome surprise for many. Several mortgage lenders have already committed to slashing standard variable rates in line with the Bank of England reduction including Nationwide (from 7.24 per cent to 6.99 per cent) and Halifax (7.75 per cent to 7.50 per cent). This will take effect from next month while certain other lenders, such as First Direct have implemented the change (6.75 per cent to 6.50 per cent) immediately.
Head of mortgages at Abbey, Nici Audhlam-Gardiner, said: "The rate cut will be a welcome start to 2008 providing relief for house buyers and remortgagers as it eases the pressure on monthly mortgage payments. For those trying to get onto the property ladder, the prospect of buying a first home at last looks a little more affordable."
CML director general, Michael Coogan, shared this opinion. "A reduction in interest rates is exactly what the market needs and will benefit consumers. This will reduce the risk of payment shock for the 1.4 million borrowers coming off fixed rates in the next year," he said.
Nevertheless, the Bank has been criticised by some for not making a more drastic cut. Andrew Hagger of moneyfacts.co.uk said: "Although the housing market and those due to come off a fixed-rate mortgage in the near future will welcome the first rate reduction since August 2005, there are still potential inflationary pressures from rising food and oil prices for the MPC to keep a close eye on."
And John Charcol's Ray Boulger expressed similar concerns. "Unless the Governor of the Bank of England accepts that we are now well past his “moral hazard” stage and starts pumping much more liquidity into the banking system it may prove necessary to cut Bank Rate below five per cent just to generate a significant impact on market rates," he said.
The general consensus is that further rate cuts are needed if a profound effect is to be felt by the consumer. Mr Cooper said: "We still need the authorities to intervene more aggressively to open wholesale funding markets. There is a real need to minimise the shortfall between the demand for mortgages and lenders' capacity to supply them." However, most critics agreed with Mr Boulger that the cut is "a sensible first step" for the UK economy.
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