Rate cut could be good for new homeowners

08-Feb-2008

As the Bank of England announces its interest rate cut as expected, first-time buyers may find the outlook considerably improved for their house hunt.

Major lenders such as Halifax, Nationwide, Abbey, Royal Bank of Scotland, NatWest and Lloyds TSB have all been quick to assure consumers that the cut will be passed on to them, but many will wait until March to cut their standard variable rates by 0.25 per cent.

However, LloydsTSB and First Direct, for example, have stated that they intend to make the reductions available immediately to variable rate mortgage customers as well as new customers.

This is good news for first-time buyers, especially in light of the fact that a fifth of lenders failed to pass on the benefits of the last rate cut in December.

The Building Societies Association (BSA) has noted the rate cut has shown that the monetary policy committee has acknowledged that the economy is struggling at present, and with the housing market still slowing it should be a welcome boost to homeowners.

Brian Morris, head of savings policy at the BSA, notes: "The cut will be particularly welcomed by those taking out a new mortgage and those coming off a fixed-rate product. It will also provide support to people struggling to afford a home."

He added that, with current market uncertainty, it is crucial that homeowners make sure that they are able to keep up with mortgage repayments and that they make the lender aware of any difficulties they may foresee.

It has been evident that household budgets have been substantially stretched over the course of the last few months, so the news of the cut will be welcomed by existing homeowners, as well as those looking to get a foot on the property ladder.

Research conducted by Moneyexpert has found that some 1.1 million household bills are not being paid, while some half a million credit card applications are being refused.

Moneyexpert commented: "The average mortgage holder would save around £554 a year and will reduce their monthly repayments by nearly £50 a month as a result of a 0.5 per cent drop in interest rates since December."

A monthly survey by Spicerhaart Financial Services (SFS) has shown that first-time buyers are already starting to re-enter the property market due to the likelihood of today's rate cut announcement.

Figures have shown that the credit crunch saw a significant drop in the number of first-time buyers, but that numbers crept back up by two per cent during January when first-time buyers accounted for a third of all purchases.

Steve Cox, operations director of Spicerhaart Financial Services, noted: "Borrowers are finding higher deposits to put into their homes signalling not only that consumers are confident in investing an increasing amount of equity into property, but that lending has become more responsible."

Meanwhile, the National Association of Estate Agents (NAEA) has also said that the cut should go some way to restoring confidence in the house-buying market.

Commenting on the issue, Peter Bolton King, Chief Executive at the NAEA, comments: " It's a shame that the Bank waited until now to reduce rates again - a drop in January following the December cut could have been particularly good news for consumer confidence. I am hopeful, though, that this latest decrease will prove the catalyst we've been waiting for to restore faith in the market."

Overall, the rate cut may be a welcome and much-needed piece of good news for the property market, with added significance for the first-time buyer.

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