Some good news at last for beleaguered homeowners but is it all it's cracked up to be?
The Bank of England has today bowed to huge pressure to respond to the falling housing market and the struggling economy by giving us all the first interest rate cut in over 2 years!
Expectations of a rate cut had risen in recent days after figures indicated that economic conditions had deteriorated over the past few weeks. Analysts had said that the Bank's decision was one of the hardest it had faced during the past decade. This was because of concerns about inflation and the impact that a rate cut may have on price growth.
The drop in the interest rate will offer relief to homeowners on variable rate mortgages but means lower returns for savers.
The 0.25% cut will take around £10-15 a month off the repayments of an average typical £100,000 mortgage.
However, as long as oil and gas stays where it is the £15 a month or so back on the average 100k mortgage won't make a huge amount of difference wil it?
Many in the City were already pencilling in interest rates down to 5% by the middle of next year but most had expected the first cut to come in January or February next year, rather than today.
But the Bank of England's Monetary Policy Committee clearly decided that the economy is now slowing more quickly than it had anticipated and needed the tonic of lower rates to try and prevent it going into a nosedive.
Independent and award winning personal finance site Fool.co.uk urged homeowners to take advantage of today's rate cut, but also to remain vigilant over the cost of borrowing in the future. A raft of lacklustre statements from high street retailers, a downturn in the housing market and ebbing consumer confidence point to growing concerns over the health of the UK economy.
David Kuo, Head of Personal Finance at Fool.co.uk, says:
"The Bank of England has finally been stirred into action as it bows to calls by industry leaders to revive the flagging UK economy. It seems the central bank has decided to throw caution to the wind as far as inflation is concerned. Consumers should not look a gift horse in the mouth, but nor should we follow its lead.
"Homeowners on tracker-rate mortgages will see an immediate reduction in their monthly repayments. But they should capitalise on the rate cut by maintaining repayments at the previous level.
"Currently, the repayments on a 25-year £200,000 mortgage at 6% are £1,288 a month. This will drop to £1,258 after today's quarter point reduction. But by maintaining repayments at the previous level, the length of the mortgage will be reduced by 15 months. The total interest bill will be slashed by £19,392. "Inflation remains a real threat, and it's worth bearing in mind that what the central bank gives with one hand it can easily take back with the other - at any time."
Indeed, and though we welcome the interest rate cut as a positive sign from the Bank of England, and in the short term, it will probably "work", where it may leave us a few years down the line is however another matter.
Why not let us know what you think of the rate cut?
Read John Stepek 's MoneyWeek article: Why the Bank of England Can't Save The Housing Market
Read Anatole Kaletsky's Times article: The Bank Had Better Get This Right