BoE interest rate cut begins to filter through to mortgage market

Country:  UK

17 November 2008

As the Interbank lending rate drops – the rate at which banks lend to each other – so there should be a fall in tracker mortgage rates. In fact, consumers and buyers should notice an across-the-board drop in borrowing money but clearly, this didn’t happen initially. So this is a bit of good news and shows that whilst cautious – understandably – the banks are passing the saving on to the consumer. The interesting question is whether they’re doing this to gain some competitive advantage in a tough and depressed marketplace; or if the pressure being exerted on them by the government, the BoE, industry commentators and public opinion (largely through and driven by the media) is the real reason for the slide.
 
If this is the case, the more important point of pressure might focus on actually making credit available. The UK housing market is ripe for activity – after all, people still need houses (first-time buyers and new families, for example) and are eager to take advantage of falling house prices; whilst plenty of people are desperate  - or have no choice - but to sell. So why isn’t this happening? For a very simple reason: credit has dried up.
 
So really, interest rates are of secondary concern – the primary focus of the government, commentators and the media should be to get the banks to free up credit. This will provide the fuel injection needed to drive the housing market – interest rates merely oil the cogs.