Quality Speaks For Itself

Interest rates coming down…but who benefits?

Posted in Financing by Ash on December 12th, 2008 05:15pm

Over the last couple of months we have seen the Bank of England cut UK base rates from 5% to 2%. So this is a cut of some 60% in borrowing costs. There is talk that we will see further cuts in the next couple of months as the central bank tries to stimulate a clearly suffering economy.

Obviously those on existing tracker rates (whether residential or BTL) are benefiting but what is the position for new borrowers? A couple of months ago a major UK lender was offering prospective customers with a 25% deposit a mortgage rate of 4.79% as a two year base rate tracker and 5.04% for a two year fixed rate. Now the same lender has withdrawn all of its tracker products and its two year fixed rate is now at 4.54%. So the tracker which would provide the most benefit both now and in the future (if rates are cut further) has disappeared altogether and the fixed rate has come down by 10% or so against the backdrop of a 60% fall in base rates!

The banks are clearly using the current interest rate climate to rebuild capital reserves which have been decimated by recent events. As I have stated previously investors looking to refinance property portfolios or selectively acquire property should look at current financing as “bridge finance” until markets return to normal.