HUH - No thread about the US rate cut??

CB1979_2

A bigger-than-expected cut in interest rates in the US has fuelled hopes that the global credit crunch which sparked the bank run on the Northern Rock will begin to ease.
The half percentage point cut by the Federal Reserve was aimed at preventing a recession from being triggered across the Atlantic.
But it will have far-reaching consequences across the world and should ease the pressure on many banks in the UK

more in the link

http://news.uk.msn.com/Article.aspx?cp-documentid=6167155

so what does this mean for the UK?

as i know all the HPC'ers say that whatever happens in the US affects the UK, is this good news then for home owners not on a fixed rate?

obviously with the direct relationship (the HPC'ers say is there) does this mean that the UK rates will be cut & the house crash is put on hold again for a year or so?

dolce_vita

You obviously haven't looked very hard.

http://forums.moneysavingexpert.com/showthread.html?t=555263

CB1979_2

cheers dv - i didn't see that

dannyboycey

CB1979 wrote: »

is this good news then for home owners not on a fixed rate?

Not necessarily. Existing homeowners, maybe. It will give the banks a bit of room to manoeuvre but I doubt they will pass much of this on to new borrowers (if any). Prices will probably stabilise again for a few months, but all that they are doing is delaying the fallout.

The real winners will be those with savings.

HugoSP

dannyboycey wrote: »

Not necessarily. Existing homeowners, maybe. It will give the banks a bit of room to manoeuvre but I doubt they will pass much of this on to new borrowers (if any). Prices will probably stabilise again for a few months, but all that they are doing is delaying the fallout.

The real winners will be those with savings.

How will savers benefit? The next rate move is likely to be down not up. So they are now more confident that the banking system won't crash around their ears. Well it was never going to anyway. Maybe this will ease worries that some people had.

In the short term I think that existing borrowers will have an easier life when they come off their fixed rate deals, or those on existing tracker mortgages will reap the benefit.

In the medium term cheaper mortgages will be avalable. After all lenders are in competition with one another. So anyone considering a remortgage may be advised to wait a month or two, unless a current product would save them significantly.

As I have in the past been accused of spouting facts with no basis but my own experience, when I include the same level of information as the poster has above. Hence I draw your attention to th following

The mortgage market is not a monopoly, bearing in mind that there are still a few main players but several smaller ones as well. We (or our IFAs) can type in a sum that we want to borrow on a number of websites and several products come up with arrangement fees, incentives, interest rates and will even calculate the cost of repayments. This way you can see what each product will cost you for the tie in period. If you are looking at 5 year fixed rates the task is simple, you add all the costs together and choose the one that will cost you the least.

My IFA told me that he came up with some 100 plus quotes from different lenders, most of which I have never heard of that offered to lend to us, all sequenced according to total cost over the benefit period.

Now, in the event of a rate cut, mortgage company A can get ahead of the game by coming down .3 of a percent on a fixed rate deal, and steal a chunk of new applications. Mortgage company B will not be outdone and respond in kind.

This may not give rise to a 15% increase in house prices, but I doubt that it will see them fall either, due to perceived affordability brought on by new mortgage products.

As has been mentioned by the OP, what happens in the US is likely to have reprocussions here. The US will probably need a lot of time to work themselves out of the situation they are in here, they won't recover overnight. Maybe on that basis we can look forward to lower rates for a few year to come.

Generali

FWIW, Big Bank are still predicting no change in 2007 and 1 cut of 0.25% in 2008 from the MPC.

More important for the UK housing market IMO is that the BoE has said that they'll take MBSs (Mortgage Backed Securities) as collateral for lending. Normally they only accept Gilts.

ds1980

please ellaborate general??????

BobProperty

Generali wrote: »

FWIW, Big Bank are still predicting no change in 2007 and 1 cut of 0.25% in 2008 from the MPC.

More important for the UK housing market IMO is that the BoE has said that they'll take MBSs (Mortgage Backed Securities) as collateral for lending. Normally they only accept Gilts.

!!!!!! ! They'll be giving Casey Serin an unsecured loan next.:eek: Has there been a supply of Stupid Pills dropped in the tea at the BofE?

Generali

ds1980 wrote: »

please ellaborate general??????

The Bank of England will usually lend to any bank that needs the money. That's one of it's jobs and it's known as Lender of Last Resort and is a normal part of the activities of any Central Bank.

When the BoE lends money they insist on security. Something they can hang on to if the bank doesn't repay it's debt (i.e. it goes bust overnight). Normally, the BoE will only accept Gilts (UK Government bonds) as security as these are the safest assets that exist in the UK.

The BoE has announced that they'll take Mortgage Backed Securities (parcelled up bundles of mortgages sold as bonds, both prime and subprime that have caused all this trouble) as security against lending. This is very unusual as it means that if you've bought a load of old rubbish, you can use it to borrow funds from the BoE as if they were the shiniest Gilts.

In effect, the BoE is promising to bail out the banks for their bad investments. It's a bit like the BoE promising to refund any losing bets you had with William Hill yesterday. If they did that, how careful would you be in the bookies tomorrow? You might as well bet the mortgage if it's a one way bet!

dannyboycey

HugoSP wrote: »

How will savers benefit? The next rate move is likely to be down not up. So they are now more confident that the banking system won't crash around their ears. Well it was never going to anyway.

The BoE are likely to reduce rates, but the CPI figures which they are using to say inflationary pressures have eased are a joke. For starters, they don't even include mortgage payments in their calculations!! A reduction in rates would prop the market up short term, but would ultimately make inflation much, much worse and possibly lead to a recession in the UK. It is widely accepted that a crash is inevitable, but nobody wants to be the scapegoat for it, so it is just being delayed for as long as possible. If you're a conspiracy theorist, you could argue that the Fed rate cut in the US shows that there is another 'war against terror' on the cards - which all boils down to the price of oil.