Thursday, 6 November 2008

Bank Base Rates Cut by 1.5%

Will today’s 1.5% cut in the Bank Base Rate affect the Private Rented Sector? There’s no doubt that any cut in Bank Base Rates is good news but is a 1.5% cut enough to help landlords?

Before the announcement by the Bank of England John Cridland, deputy director general of the CBI, said “The recession into 2009 will be both longer and deeper than expected” as he called for a big cut in interest rates.

The Halifax also announced today that house prices fell a further 2.2% in October pushing the annual fall to 13.7%.

The problem for the Private Rented Sector is that most Buy-to-Let mortgages are linked to LIBOR not the Bank Base Rate. LIBOR is the rate at which banks lend to each other and this has stayed consistently high during the Credit Crunch and still stands around 6%. As long as LIBOR remains high cuts in bank base rates will have little or no effect on the cost of borrowing money for landlords and other businesses.

Yesterday in Parliament the Prime Minister said “We want the banks and building societies to pass on the interest rate cuts to their mortgage holders”. Given that the Government now has substantial share holdings in so many major banks the question has to be why isn’t the Government telling the banks to lower their rates?

We believe that even if this rate reduction was passed on to borrowers it will have little or no effect on landlords. Will the Government really encourage lenders to support the Buy-to-Let market in preference to first time buyers and businesses? We don’t think that they will.

Lenders are under no pressure to support Buy-to-Let and with so many major Buy-to-Let lenders disappearing from the market the remaining lenders are taking the opportunity to significantly raise their costs and interest rates. We do not see this changing in the short or medium term.

Landlords have found that the cost of borrowing money has risen sharply over the past few months. Today’s cut in Bank Base Rate is very unlikely to reduce this cost. We believe that this situation will last throughout 2009 and well into 2010.

Our advice to landlords remains the same – concentrate on cash flow. Don’t expect Buy-to-Let interest rates to fall in the near future. Lenders will continue to charge high arrangement fees. The only viable offers are at 75% loan to value and below.

For more information on Buy-to-Let mortgages click here Mortgages through