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Latest rate cut unlikely to have much effect on property markets

And the introduction of quantitative easing to inject £75 billion into the system is an unproven measure and the effect on the property markets is an unknown.

The mainstream property market will be, at best, indifferent to the interest rate cut as it is not the cost of credit but the lack of it that is damaging the housing market, according to Yolande Barnes, head of residential research at Savills.

'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,' she said.

However, Barnes believes that in the long term there will be benefits for equity rich property investors. '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. Equity-rich investor buyers 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,' she explained.

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,' she added.

Liam Bailey, head of residential research at Knight Frank, also said it will be a long term measure rather than have an immediate effect. '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,' he said.

'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,' he added.

The Royal Institution of Chartered Surveyors also said that it is direct mortgage lending that needs to improve for the property market to improve. 'Any benefit for the beleaguered property market is likely to come through with something of a lag in the absence of further measures to directly support mortgage lending,' said chief economist Simon Rubinsohn.

'This may take the form of either government guarantees on new loans or a significant increase in lending by state backed banks. Either way, house prices look likely to fall further in the near term even though there are some signs that transaction levels may now be bottoming out,' he added.