What does the shock one and a half per cent interest rate cut mean for the Uk property market

Concerns over the deepening recession in the UK economy has led to the Bank of England cutting interest rates by a massive 1.5%. This move was totally unexpected and has caught economists and the markets by surprise.

So what does this mean for the UK housing market.

Well if you have a tracker mortgage then you will benefit immediately from this 1.5% interest rate cut. Savings could be as much as £90 per month on a £100,000 mortgage. Interestingly a number of tracker rate mortgages have been withdrawn from the market as banks and building societies take stock of a rapidly changing financial environment.  If your have a fixed rate mortgage then you will see no immediate benefit.  If interest rates stay at a lower level then you may be able to get a lower fixed rate when your mortgage comes up for renewal. For those with a Standard Rate Variable mortgage then it is very much a case of "wait and see" as many economists do not expect the full benefit of the interest rate reduction to be passed on.

Will this 1.5% interest rate cut help the slide in house prices?Somehow I doubt it. There is still a strong sentiment that property is overvalued and the cut in interest rates is unlikely to free up the mortgage market for first time buyers.  The affordability level is simply way too high, and banks are not going to go back to the reckless days when they would lend 5 times salary any day soon.

While the interest rate cut was made to help stave off a deepening recession, it may not succeed. Most things we buy these days comes from abroad and you may have noticed that sterling has been falling against both the US dollar and the Euro over recent weeks.  This is pushing the price of imports up.  As reported by NEXT, you are more likely to see an increase in prices in the near future than a fall.

So what does this 1.5% interest rate cute mean for the housing market.  Well I expect it will have very little immediate effect, either on prices or the volume of sales. The winners this time are those with tracker mortgages who will have a few more pounds to spend this Christmas if the fuel bills don't take all the money.