Interest rates cut again

The Bank of England s Monetary Policy Committee has cut interest rates to 5% from 5.25% to stimulate the economy in the face of a global credit crunch. It is the third rate cut from the central bank since early December, driven by problems in the money markets and lower house prices, say industry analysts. The cut was widely expected by leading economists. Liam Bailey, head of research at Knight Frank, says that although the cut is welcome, he is not convinced it will do anything to change the mortgage markets. The Bank of England can only do so much to lower rates, he says, and if there is a lack of trust between the banks then they will not lend money to help each other out. Mr Bailey also believes if the problems within the credit markets are not resolved, Knight Frank s predictions on house prices over the current year could fall from the original forecast of three per cent to -5 or even -10 per cent. If vendors really want to sell, they have to be competitive on price in the current market, advises Mr Bailey, while buyers should look at medium-term benefits. Any downward move is good news generally, suggests Richard Donnell, head of research at Hometrack. But those wanting to take out mortgages should not look at the base rate but at the LIBOR rate, the number that sets our interest rates for mortgages. If the banks are nervous about lending to one another, the rates can stay up. With so much negativity currently, Mr Donnell says sellers are being bounced into being realistic with regards to price. Some buyers are looking to take advantage of the current conditions to get a good deal, adds Mr Donnell. If you are buying to live somewhere for the next 20 years, you should be fine but buyers wanting to climb up to the next rung on the housing ladder might find it difficult.