Bank of England cuts interest rate to 5% |
The Bank of England gave a surprise in financial markets and to the homeowners across the country today when the interest rates drop down to 5%.
The quarter-point cut in borrowing costs follows earlier cuts in February and December, and lowers rates to 5 per cent, a level last seen at the start of 2007.
The drop in interest rate was widely expected in the City, was confirmed by the Bank’s Monetary Policy Committee (MPC) amid mounting fears over the economic toll from the growing credit crunch and an accelerating slide in house prices.
Homebuyers and the City will hope that the MPC’s latest effort to shore up economic prospects will help to ease resurgent money market strains and end the mortgage drought that has seen the ready availability of home loans dry up, and the cost of those still on the market jump.
Despite the Bank’s previous cuts in official rates, the financial worries caused by shortages of funds in wholesale money markets for lenders have continued to lift the cost of borrowing for institutions, companies, consumers and homebuyers.
For thousands of those remortgaging from cheap, fixed-rate deals, Bank of England figures yesterday showed that new two-year fixed rates increased from 5.75 per cent to 5.80 per cent in March for borrowers seeking 75 per cent of a property’s value.
Rates rose from 6.55 per cent on average to 6.64 per cent last month for more risky borrowers seeking 95 per cent loans the highest such rate for almost eight years.
This week by figures from the Halifax, the country’s biggest mortgage lender, showing that house prices tumbled by 2.5 per cent in March, wiping almost £5,000 of the value of the average home in a single month.
After a survey from the Nationwide Building Society showed that on its data prices fell for a fifth month in a row in March (although less sharply last month than on the Halifax figures) there are growing worries that the housing market slide is threatening to accelerate into a slump, and could in turn undercut consumer confidence and spending, dealing a heavy blow to growth.
Household spending growth in the final quarter of last year (Q4) all but ground to a halt, rising by a meager 0.1 per cent as fretful Britons raised their savings, according to official national accounts data.
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Added on 10/04/2008 21:52:27
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