Base Rate Cut to 1.5%, but it’s no Longer an Effective Economic Tool

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) January 8, 2009 -- The direct impact of base rate cuts felt by borrowers is limited by lenders’ collared tracker products and their unwillingness to pass on the lower rates in SVRs. This is seen particularly from lenders that are not government funded. However, today’s fall does offer a degree of reassurance and stability.

Neil Young, CEO of property portfolio managers, Young Group, believes that with rates so low, and with little scope to fall further, lenders now have more certainty; “with rates reaching a new low, there is a limit as to how much further they can fall. This enables lenders to increase the confidence of their forecasts when planning product for the year ahead and should lead to an increase in their willingness to lend.”

“This first MPC decision of 2009 is akin to the Bank of England giving its opening team talk of the season. Base rate is unlikely to fall much further, lenders know what’s expected of them and the onus is now on them to go out there and perform.” Neil Young, CEO – Young Group

In the current climate, base rate setting is no longer the economic tool that it once was and is becoming less effective the lower rates fall. Building societies are facing increasing difficulties; balancing being able to offer competitive rates to retain their savers with offering their mortgage lending to their borrower; yet another reason why rates are not being passed on to borrowers. Base rate cuts alone are not the solution.

Borrowers are increasingly savvy regarding the impact of base rate cuts and their focus is on availability of lending rather than base rate. The latest Young Index poll (Q4 2008) has identified that only 12% of respondents expressed a desire for a lower base rate, whereas 28% put the need for wider mortgage choice at the top of their wish list.

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Young Index: Summary Results for Q4 2008

• 96% of investors intend to hold their residential property investments for the next 12 months. 37% intend to hold their assets for at least 10 years and more than 20% of buy-to-let investors aim to keep their property investments for the next 15 years or more.

• 33% intend to buy additional residential property investments within London within the next 12 months, whereas just 8% of investors intend to buy UK residential property outside of the capital.

• The outlook for London property prices is 3 times higher than for the rest of the UK. 36% of investors believe that London prices will be at current levels or higher by this time next year, whereas just 10% expect the same to be true of UK property outside London.

• Investors are focusing on mortgage finance; 50% now review their mortgage every 3-6 months and almost 1 in 4 are reviewing their finance options more than once a quarter.

• 69% of respondents expect the Bank of England base rate to be at or below the current level of 2.0% at the end of 2009, and most predict it to stand at 1.0% at that time.