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Rate cut expected to have scant impact in wake of credit crunch
15 April 2008 10:30
The present dearth of credit available will continue to increase the cost of mortgages, an economic research consultancy has warned, in spite of last week's base rate reduction.
According to the latest Bank of England (BoE) credit conditions survey, lenders have decreased the supply of secured credit to households over the past three months and expect a slightly greater decline in its availability over the next quarter.
Capital Economics' UK economist Vicky Redwood explained that this has resulted in borrowers having to raise larger deposits and pay higher rates on mortgages, adding that this will continue over the next few months as problems in the money markets persist.
While the BoE lowered the base rate by 0.25 per cent to five per cent on Thursday, Ms Redwood also expressed doubts over whether such a reduction would immediately lead to lower mortgage rates given that lenders have not been fully passed on previous cuts.
The government has also recognised the credit crunch's impact on mortgage provision and last week formed a working group representing lenders, the BoE, the Treasury and the Financial Services' Authority with the task of widening the industry's funding base.
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