Thursday, February 7, 2008

Rate cut won’t help the housing market

UK Interest Rates Cut to 5.25% - Will Not Help the Housing Market

UK Interest rate cuts won't be of much help to home owners, due to the impact of the wealth effect going into reverse as house prices continue their month on month declines. For example on an average mortgage of £100k, a 0.25% cut in interest rates would result in a cut in monthly repayments of just £21. Whereas a decline in house prices of 0.5% per month results in a monthly loss of equity of £950 on an average £190,000 property. Therefore many market commentators and economists expecting a series of rate cuts to turn the UK housing market around may be surprised that the rate cuts will have very little impact on the weakening housing market, which is forecast to fall by 15% over 2 years as of August 2007.

Posted by talon @ 10:57 AM (354 views)
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