Mortgages Uncovered

Interest rates have suddenly been cut dramatically by 0.5% in the UK and central Banks globally after Bank of England made a dramatic move in slashing interest rates on Weds. This is a new unfolding in the dramatic reaction to current global financial turmoil.

The decision to cut rates funded by the 50 billion Treasury bail out of the banking system was announced by the Bank a day earlier than originally expected.

This will be the first move by the Bank since the financial aftermath of the U.S. 9/11 attacks during Nov 2001.

US Federal Reserve have also cut their interest rates by 0.5% along with European Central Bank, Swiss, Swedish and Canadian central banks. China has also cut its rate by 27 points.

Bank of Japan has current rates at 0.5% currently and did not make any changes but the Fed said that the BOJ has expressed very strong support for the new action.

“Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months,”

the Fed said in a statement.

“Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

The Fed claims that cutting US rates was a unanimous decision and that their inflation predictions appeared to be starting to diminish which may also help support current price stability.

“The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,”

the Fed said.
The new Bank of England cut now means that people could be saving £47 per month based on a £150K mortgage should the reduction be passed on in full by mortgage lenders. Mortgage lenders who have promised to pass on the rate decrease so far include Lloyds TSB, Halifax and HBOS amongst the key lenders. Economists have predicted that more cuts are due.

Julian Jessop, Capital Economics said:

“Today’s co-ordinated half-point rate cuts from all the major central banks will provide at least a temporary boost to confidence but we fear that there is still a lot more work to do. For a start, the fact that the central banks have had to take such extreme measures underlines how bad market conditions have become.”

This week saw the London’s FTSE 100 plunge to its largest fall since the renowned Black Monday in 1987 and the turmoil also spread through Europe, interbank lending has virtually ground to a halt.

Chief economist for the EEF manufacturer’s Org, Steve Radley said:

“Manufacturers will welcome this bold and decisive move to arrest the current crisis and collapse in confidence.
Coupled with the plan to shore up the financial system, today’s co-ordinated moves should help arrest the potential slide into depression.”