Further rate cuts needed to keep house market moving

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The Independent Online
LENDERS RUSHED to be the first to reduce mortgage rates yesterday, but said that further cuts would be needed to keep the housing market moving.

Three lenders - Abbey National, Nationwide and Leeds & Holbeck - all cut their rates by 0.3 per cent, slightly more than the quarter point approved by the Bank of England. Most of the other lenders followed suit.

In an attempt to beat the rivals, Nationwide made its cut even before the interest rate decision was announced. Halifax and Cheltenham & Gloucester cut their rates by a more modest 0.25 per cent.

A borrower with Leeds & Holbeck, the cheapest of the five at 8.15 per cent, will now pay pounds 455.27 a month for an average loan of pounds 60,000. That represents a saving of pounds 10.81.

Lenders welcomed the rate cut, but forecast that house prices would still barely rise in the coming months. They warned that a recession - and not inflation - was now the biggest danger to the housing market and the wider economy.

Michael Coogan, director of the Council of Mortgage Lenders, said: "This is the right decision at the right time for a rate cut as far as the housing market is concerned. Activity has been cooling recently, and there need be no worry that this cut will fuel any kind of inflationary pressure feeding through from the housing market."

Two key indexes of house prices, from the Halifax and Nationwide, have shown house prices falling in August. Nationwide reported further falls in September while Halifax reported a slight rise.

Gren Folwell, deputy chief executive of the Halifax, said: "This move by the Monetary Policy Committee will be of help to the housing market which has shown signs of slowing down in recent months."

Lenders have grown increasingly worried that a combination of high interest rates and economic woes have been driving first-time buyers away from the housing market.

Market data has shown a much lower number of transactions being recorded. While building societies and banks are still lending at the same levels as last year, most of the money is going to existing borrowers wanting a better rate.

Judging by interest rates on the money markets, lenders expect base rates to fall a further 1.25 percentage point, to about 6 per cent, by the end of next year. Mortgage rates would be likely to fall by the same amount. Interest rates on savings accounts will also drop in weeks to come.

Brian Davis, chief executive of Nationwide, said: "I think rates will need to keep moving - I can't see this being the end of it. Inflation is no longer the issue now. The bigger risk is that we go into recession."

Other lenders went further, branding the rate cut inadequate. Martin Finegold, chairman of Kensington Mortgage Company, said: "Homeowners across the country have been crying out for a cut in rates throughout what has been a long, dry summer in the housing market.

"While I applaud the cut, I am left with a feeling of too little, too late."

Savers are expected to see returns on their accounts reduced because of the Bank of England's rate cut - though some banks have resisted paying higher interest to savers since the last rate rise in June.

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