Rate cuts not always good news for first-time buyers

02-Feb-2009

Interest rate reductions may not be quite as beneficial to prospective first-time buyers as they may think, it has been claimed.

Tracker and variable-rate mortgage holders have seen their monthly repayments fall in recent times following a succession of base rate cuts by the Bank of England's monetary policy committee (MPC).

This, combined with falling property prices, has helped to make the cost of getting on to the property ladder appear more affordable.

However, the trend has been counteracted by the fact it has become more difficult to obtain approval for a mortgage and the Building Societies Association has now warned that any further cut in the base rate could make the situation worse.

It explained that its members rely on inflows of funds from personal savers to finance mortgage lending and that low interest rates deter people from saving.

A further base rate cut this week could lead to building societies having to restrict the availability of mortgages, the BSA added, at a time when banks are struggling to raise funds for lending.

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