The Bank of England had no choice but to cut interest rates this week in order to restore market confidence, according to the comparison website moneysupermarket.com, commenting on its decision to cut the base rate from five to 4.5 per cent.
The surprise announcement from the Bank of England – coming a day earlier than the expected base rate decision – is "welcome and decisive action", said Louise Ciming, head of mortgages at moneysupermarket.com.
It took the market by surprise and will "bring immediate relief for the 4.2 million borrowers with tracker mortgages
" she said, which account for 36 per cent of the UK's mortgage
For example, a family with a £150,000 mortgage will save more than £40 a month as a result of the 0.5 per cent rate cut, a total annual saving of nearly £500.
Even though cutting rates meant that the Bank of England had to relinquish its battle against inflation, it will mean that households that have been struggling under the weight of higher mortgage rates
will see "significant monthly savings", Ms Cuming continued, calling the rate cut a "vital move" to increase confidence in the market.
Ray Boulger of independent mortgage adviser John Charcol, thinks that the decision to cut interest rates today "demonstrates that at last our Government and others have recognised the scale of the problems", but he added that "Further cuts will still be needed, and sooner rather than later".
Richard Woolnough from M&G Investments agrees that more must be done to improve conditions in the property sector. Capital and affordability are the two main catalysts for a healthy housing market, he says, and while he allows that today's rate cut helps, but much more drastic reductions are necessary.
Mr Woolnough recommends that rates be brought back down to 3.5 per cent, and "if 3.5% fails to stimulate the mortgage market, it needs to be driven much lower." in order to "stop the free-falling UK housing market". he said.
© Fair Investment