Money Blog: Has the Interest Rate Cut Given the Housing Market the Kiss of Life?
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Home » Money Blog » Recession Watch » Has the Interest Rate Cut Given the Housing Market the Kiss of Life?
Has the Interest Rate Cut Given the Housing Market the Kiss of Life?
By Nic Cicutti
Oct 8, 02:57 PM
Lesson to self: don’t be more pessimistic than you need to be. It’s been a mere two hours since the Bank of England’s emergency interest rate cut – and lenders are already rushing to cut their mortgage rates. But how did the sudden good news come about?
In my article earlier today, explaining how the £50bn bank bail-out by the Government would work, I suggested that the measure would be more effective if there were a co-ordinated base rate cut by the world’s central banks.
“How likely is that?” the question was asked. “Not very,” was my reply.
Well, I was dead wrong on that one: within two hours of the rescue package being unveiled this morning, the Bank of England, the US Federal Reserve and the European Central Bank all announced a 0.5 percentage point cut in their base rates. They were joined by the Swedish, Canadian and Swiss central banks.
The announcement is important in two ways: first, it offers a significant saving for up to 28% of all mortgage borrowers on tracker mortgages – that’s more than 2.5 million households.
In addition, several lenders – including the Halifax, Barclays and its Woolwich subsidiary, Lloyds TSB and C&G – have also reacted by cutting their standard variable rates by the same amount.
In effect, almost all borrowers not on a fixed rate will benefit from today’s announcement – that’s more than half the market.
How much is it worth? For someone on a typical £150,000 repayment mortgage, that means a cut of almost £47 a month in their outgoings. Not bad at all.
Second, when coupled with what appears to be a huge drive by the Government to get lenders to keep lending mortgage to borrowers, it means that new would-be borrowers will get access to funds, particularly at a time when markets were drying up.
Let’s be clear: this is not a panacea for homeowners, especially those worried by falling prices. Nor will it suddenly bring first-time buyers back into the market. For them, ironically, prices still need to fall further before they can afford to return.
But this is still good news.
And there’s good news for savers too – the Government is in effect offering a bail-out of Icesave customers, especially those who had more than £50,000 in their accounts.
This is all the more significant as the Icelandic government appears to have walked away from even its “passport” part of the deposit protection scheme, where it should have paid the first £16,300 of any compensation package.
Plus ING Direct is offering a bailout for tens of thousands of savers who have some £3bn with the Icelandic-owned Heritable and Kaupthing banks.
Perhaps most important, the combined rate decision shows that central banks appear to be showing some understanding of the extent of the measures needed in today’s panic-stricken market.
Of course, quite how successful all this intervention will be is still uncertain, certainly in the short term.
The UK stock market has gyrated madly today, falling by 7% first thing this morning before moving into positive territory at lunchtime. Yet even as I write, it is now almost 3.8% down on yesterday’s close.
Interestingly, some bank shares appear to be recovering after yesterday’s collapse, suggesting that some investors at least believe they now have the capacity to withstand quite severe future economic shocks.
The reality is that all world stock markets believe a major recession is round the corner, that earnings will be low and their response, particularly in the US, suggests they remain both scared and highly pessimistic.
Today’s intervention is not a miracle cure, the magic bullet that a few optimists hoped it would be. But it offers a tentative way forward out of the mess. It’s all we have to hold on to in the coming days.
User Comments
JACKO 12 October 2008, 18:45
its all a con, goverments buy banks mortage dedts, so the people that got kick out of there house,s pay the money to the goverments, and the banks go unpunished. if people got kick out of house,s the goverments have got to house them. so if goverments buy them, (it good a ????) alegdley
d barton 12 October 2008, 09:55
if you or i failed to pay our debts mortgages, now i am talking normal people here, not MP’s or footballers our houses are repossed or we have ballifs knocking on our door now is the time to say enough is enough lets start letting the goverment know that we think the piss take has gone on long enough. the the workers of this country start having one day strikes lets get them to notice we have rights to we are not pawns for them to play with and we are the ones that pay there wages and without us the wouldnt have a bloody job becuase lets face it they dont know what real work is they couldnt do a full days proper work if they tried and i hope they are losing thousands of pounds on there shares they deserve every penny lost
k shadwick 11 October 2008, 18:17
what happend to the millions proffits the banks made over the years, giving them selfs high bonuses and good living , now we have to pay for there greed, sack all the greedy gits and there sidekicks freeze there acounts and hand it back to us the taxpayers ,then let then get a real job were they have to work for there wages on an hourly rate like most of us, theres tomany hands dipping in the pot as it is mps should have there expencese stopped and pay it thereself ,why should we pay for there transport,houses, and there hangerson.
Avril 11 October 2008, 16:03
Have a family of 4, living in a 2 bedroom semi-detached house in Gt Yarmouth (one of 88 deprived towns in UK), on maternity leave and have one wage coming in, which recently had a pay cut, this at all is NOT helping matters, and we’re worse off than ever!!! Like most of us in UK. Struggling to pay bills and debt. Look what you’ve done to us. Rates are getting higher and higher, i.e fuel, food, oil, other household bills but will they stop?… I’m all for Jo Robbins comment… ITS GREED! we all should be treated equally. Yeah Right!
All those that are more than comfortable financially, put your hand in your pockets and help out this country, other wise how will take over to bail us out…?
jafferi Md.Nor 11 October 2008, 09:36
pehaps there is something surchanged comparison to AIG Bank with No BLR charges.
bob 11 October 2008, 08:34
Bob
In 1991 I was kicked out of my house. The then building society, now bank! repossessed the property. Clever people in the city said “We can not let this happen again” today its worse. I’m not clever but I could see this happening again. I talk to people and watch them spending with plastic money. If the banks recall this plastic national debt within 5 days, what then? What to do. Fix house prices, a house is a place to live in not an investment. Have a fixed wage regulated by law for the money handlers i.e. bankers, investors, speculators. But we live in a real world controlled by human nature and greed. There will be no change so we must just get on with it some how. Tony Benn said long ago “ nationalise banks and he was shouted down. What’s happened today the dirty word is being used!
As a pensioner living on basic pension I hear the stock market dropped 8 points. In a year my weekly standard of living has dropped by 25%. Should I feel sorry for the greed of the stock market and the investers?
Bill 11 October 2008, 05:52
If anything remotely positive comes out of this disaster it might be the widespread realisation that global capitalism can no longer be allowed to get away with all that it has become accustomed to getting away with, and that there have to be globally enforced laws to curb its preposterous excesses. A few very, very rich people can make themselves even richer at the expense of people like you and me. They can even ruin the economies of whole countries with a few telephone calls to their brokers. This is happening NOW.
There’s a common misconception that if you own capital you’re a capitalist. WRONG – to be a proper capitalist you have to CONTROL capital – mainly other people’s, which we give them with no questions asked in return for a pathetic bit of interest. Their own vast riches remain protected from the terrible things that are happening now.
Governments worldwide have to get together and work out how to protect ordinary people from rampant, utterly irresponsible global-level capitalism and its attendant uncaring greed. That’s the only way we might get out of this mess and prevent the planet from getting into it again and again and again.
c. colon 10 October 2008, 21:59
it seems there are a great number of us who would prefer to suffer hard times than see the greedy bankers and city boys get away scot free.
jo robbins 10 October 2008, 16:17
What happened to robbing the rich to feed the poor these days its robbing the poor to give to the rich so they can carry on living in there mansion and keep there other five houses arond the world , not so for us it would all be taken away .bring back Robin hood !
TREVOR WYLDE 10 October 2008, 05:05
Why doesn’t the government make the greedy *ankers (sorry, I mean bankers) pay back all the money they have received in bonuses whilst getting us in this mess and tell them their fat pensions are at risk if they don’t help to put it right. They have gambled with someone else’s money and lost it whilst adding to their own pot, it’s a robbery that will go unpunished and it’s disgraceful!!!!!
e ,mclean 8 October 2008, 19:53
why should tax payers bail out the banks , when joe bloggs cant pay his mortgage the banks are quick to want to kick you out of your house,
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