Base rate cut to 5%

by Gill Montia

Story link: Base rate cut to 5%

The Bank of England’s Monetary Policy Committee has today reduced the base rate to 5%.

The cut of 0.25% was widely predicted, as concerns about a slowdown in the UK economy and a house price crash have increased.

Homeowners on variable rate loans will be keen to discover whether their lenders will be passing on the reduction, which is the third in five months.

On a £100,000 mortgage with interest charged at 7.25%, the new rate of 7% will save £16 per month.

However, as lenders continue to struggle with a shortage of cash in the money markets they are increasingly looking to their profit margins and may not pass on the benefit in full.

In recent weeks, property analysts have shifted away from predictions of prices stagnating into 2009, towards an outright fall in prices and the Bank’s move should, at least, increase confidence in the housing market.

Latest figures from Halifax, the UK largest mortgage lender, show a 2.5% fall in the average price of a home in March.

The decline was the sharpest in a month since September 1992, and compares with a fall of 0.4% in February.