| Current
UK Interest Rate: 5.5%
UK
Interest Rates Forecast: Further cut likely early in 2008
Bank
Cuts Rates To 5.5%
At
their monthly meeting on Thursday this week, the Bank
of England’s Monetary Policy Committee agreed to
cut interest rates by one quarter of
a percent, leaving them at 5.5%.
The
rate cut had been widely-requested by businesses and some
economists, but it was still far from certain whether
the cut would come this month or early next year.
The
0.25% cut means that homeowners with a £100,000
variable rate mortgage should find themselves between
£15 and £20 better off each month –
assuming their lenders pass on the rate cut.
While
at least two of Britain’s largest lenders immediately
promised to cut their mortgage rates accordingly, it is
not yet clear whether all lenders will do so.
Many
lenders are still struggling to increase their cash reserves
to protect themselves from the effects of the credit crunch.
A cut in the Bank of England rate offers them the opportunity
to leave their variable rate unchanged and improve their
profit margins.
What
Does This Mean For Me?
While
it may take a little time for the impact of the rate cut
to become clear, for homeowners, two things seem certain:
·
The cut in rates should help the estimated 1.4 million
homeowners who will be coming off fixed rates in the next
year. They will have the choice of remortgaging to another
fixed rate deal or transferring to their lender’s
variable rate. Both of these options will have higher
interest rates than their current mortgage
– so any reduction in rates to lessen the impact
will be extremely welcome.
·
This rate cut won’t magically kick start the housing
market again – and nor is it intended too.
The consequences of the credit crunch have been that banks
and building societies have become much more cautious
in their lending – and that position is unlikely
to change in the near future.
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