Base Rate Cut – Bank of England slashes interest rates

Liam Bailey, head of residential research, Knight Frank comments:

"The decision to cut base rates by a further 0.5% will improve activity in the long-term, but, like other recent cuts, will have little immediate effect in itself. Indeed, the government’s recent decision to force the nationalised banks to lend will probably do more to revive lending than any change in interest rates.

"With Northern Rock now committed to lending £14bn, and the Royal Bank of Scotland committed to a further £9bn, it is likely that mortgage volumes will begin to increase and loans will become available on less onerous terms. As the Government will also insist that finance is available for higher loan-to-value ratios, it will also provide help to first-time buyers.

Clearly, this will help to prevent more significant price falls and adds credence to our belief that prices will stabilise towards the end of 2009. It is worth pointing out, however, that these amounts, while significant by recent standards of lending, are not enough to bring the market back to more normal levels of activity.

"Moreover, there is an increasing belief that inflation may become more of a factor in the medium term, particularly with the Bank of England now committed to qualitative easing, and rates may actually increase towards the end of the year."

Courtesy: Knight Frank Residential Research

For further information, please contact:

Liam Bailey on
Tel: +44 (0) 7919 303 148