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Bank of England massive rate cut unlikely to have much impact on property market

But analysts are warning that the cut from 4.5% to 3% will really only help the property market if the full cut is passed on by lenders and the move is unlikely to have an immediate positive effect. Indeed some experts believe it will initially have a negative impact.

'Today's shock interest rate cut is clearly welcome news for the housing market. It is unlikely, however, that even a 1.5% cut will have any immediate effect on mortgage volumes or house prices,' said Liam Bailey, head of residential research at Knight Frank.

The problem is that the inter bank lending rate is still high because of the crisis in the banking system. 'As most banks fund mortgage borrowing through the wholesale markets, the rates available to homebuyers are unlikely to fall in the short-term. The lenders themselves will remain focused on their own financial health,' he warned.

The bank's Monetary Policy Committee had little option but to reduce the base rate and by cutting it so dramatically it has taken a bold move, according to analysts at Jones Lang LaSalle. 'Its impact is uncertain as it depends how much of the base rate change will be passed on to existing mortgage holders or onto potential home buyers,' said Neil Chegwidden, the consultancy's head of residential research.

'But more importantly because the current UK housing market is so weighed down by other influences even this fundamental change in home financing conditions is unlikely to penetrate the current gloom,' he added.

The move could have a negative impact, he warns. 'The incredible escalation of financial events over the past couple of months has significantly heightened the likely depth and duration of a UK recession and has also weakened the economic outlooks of almost all other nations. So now, because of the latest round of financial crises and bail-outs, and in spite of the base rate cut, house price falls are likely to escalate again rather than ease,' he said.

'Unfortunately for the UK housing market, and despite the significant base rate cut, the usual fillip provided by an interest rate cut will not be evident this time around. Indeed the change is likely to create greater worry for households, initially at least, rather than provide a boost.'

The Council of Mortgage Lenders welcomed the cut. 'This is a strong and decisive move by the Bank of England. They have grasped the nettle in a worsening recession environment,' said CML director general, Michael Coogan.

'What is important is how this feeds through to lenders' borrowing costs. Lenders will need to balance the interests of savers, as well but such a sharp downward movement provides more room for lower borrowing costs more quickly,' he added.

Mortgage lenders have 'run out of excuses' for not passing on the Bank of England base rate cuts to borrowers, according to online mortgage company mform.co.uk. It points out that not only have lenders failed to pass on recent interest rate cuts but some have increased the rates on their trackers.

'At last the Bank of England has listened to the clamour for a dramatic step change in interest rates and this cut should have an immediate positive impact on the cost of borrowing. Lenders have finally run out of excuses and must now do the decent thing and pass on the rate cut in full,' said Eamonn Rice, Chief Executive.

'The bail-out deal with banks supposedly had a condition that they should make funds available to mortgage customers and small businesses. Taxpayers are entitled to wonder when the banks are going to fulfill their part of the bargain,' he added.

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