Intelligent Finance (IF) and Halifax have reacted immediately to the rate cut announced by the Bank of England's Monetary Policy Committee (MPC) this lunchtime with predictions rates may fall again ringing in their ears.
IF says variable rate mortgage borrowers will save over £1.25bn in interest over the course of the next year, assuming all lenders follow its lead. A typical mortgage borrower with a £100,000 variable rate mortgage will be £250 a year better off if their bank passes on the full benefits of the rate cut, it says.
Meanwhile, Halifax says it will be reducing its standard variable rate with the 0.25% reduction coming into effect for borrowers, including tracker mortgage customers, from 1st September 2005.
The City has been quick to welcome the announcement with most analysts – seeming mildly relieved - claiming the cut in rates is not over yet.
Peter Williams, deputy director general of the Council of Mortgage Lenders, says: " The rate cut will help stem the decline in consumer confidence and support the view that interest rates have peaked. It is possible that the MPC will consider future cuts, though these will need to be looked at in light of economic circumstances and inflationary pressures over the coming months".
Meanwhile, Jim Buckle, managing director of propertyfinder.com, says without today’s interest rate cut, the housing market would have quickly sunk back into the doldrums having begun to show signs of recovery in the last three months. And that “further action to reduce rates in the Autumn looks fully justified.”
Brian Murphy, lending manger at Mortgage Advice Bureau, calls the cut in interest rates is “overdue“ and that although a 0.25% drop will not have a huge impact on mortgage rates, it should restore a some confidence to purchasers.
While Lee Grandin, managing director of Landlord Mortgages, says the rate change is unlikely to cause a massive influx of ordinary consumers purchasing houses as they are still facing the problem of needing huge income multiples and finding a substantial deposit meaning buy-to-let landlords will continue to be able to snap up bargains from sellers looking for a quick sale.
Russell Silberston, fixed income manager at Investec Asset Management, says it would have been surprising if the Bank had not cut rates today since, according to its mandate, if the inflation target is met, the Bank will direct monetary policy to support the government’s growth and employment objectives. “The real question is what will drive UK growth going forward: investment growth remains sub-trend, 46% of UK exports are sent to the lacklustre eurozone economy, the impetus from government spending is fading and consumer spending has slowed. At the margin there are signs of distress in unsecured and credit card debt and falling house price inflation will do little to buoy confidence,” he adds.
Threadneedle believes things will now get more interesting with the Bank's current thinking on interest rates being set out in next Wednesday's Quarterly Inflation Report. “Market views have come a long way this year, starting with an expectation for more interest rate increases, and more recently swinging to price in almost 75 basis points of cuts, to 4%, by the end of this year,” Quentin Fitzsimmons manager of the Threadneedle Sterling Bond Fund, says.
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