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UK housing market indifferent to rate cut

"We have been saying for months now that it is not the cost of credit but the lack of it that is damaging the housing market."

"While existing owners on tracker mortgages do well from the rate cut, the 46% who own outright, without mortgages, will not be directly affected.

"People seeking to enter the market now will be faced with much higher rates of interest than those on old tracker mortgages, as lenders keep their margins much higher than they have in the past.  More importantly, they find themselves unable to find the size of deposit needed to obtain a mortgage.

"The reduction of base rates to 0.5% is also a clear blow to savers. Over time this will reduce householders' propensity to save money.  Discouraging saving perpetuates the lack of credit.  Prudent deposit-takers seeking to lend on the back of high capital-adequacy will be thwarted and, in the longer term, this could restrict the supply of funds available for mortgage borrowing from Building Societies, for example.

"On a more positive note, the signs are that long term bond rates are now being driven down.  This makes yields on real estate look ever better value and should fuel investor demand.  The beneficiaries will once again be the equity-rich investor buyers who can benefit both from falling prices and the opportunity to gear up at advantageous rates.  If this opportunity is seized it could, arguably, bring the first stage in a top-down market recovery into view. 

"For a wider impact to be felt, it remains to be seen whether the untested tactic of quantitative easing will have the effect of driving credit out from the banks."

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