Shock drop in UK bank lending interest rates by 1.5%. The longest for over twenty years. This sent out a negative signal to markets indicating that the economy was in deep trouble and drastic measures are required. There is doubt if this will be passed on to the home owners and drop mortgage rates. Though more than thirty banks made a withdrawal of tracker rates.
The problem is banks are not charities and need to satisfy stock investor that they are profitable and a good long term investment. If banks are already badly damaged by the credit crunch, nervous about borrowing and lending money then they are not going to be receptacle to every demand of the government. The bottom line is they are businesses that have to show healthy and sustainable profit to shareholders. This could mean a continuation of inferior mortgage deals.
Some fiscal commentators have stated that it might be as long as 2012 until house prices start to improve though nobody can say for sure. However considering what was happened recently including major banks across the world looking to fall and governments taking unprecedented actions to protect their economies it does raise the question of how severe their credit crisis is. Lending finance is no longer easy.
The economic slow down seems to be rippling across the globe and will even effect the Far East as they produce for the West even though they have been experiencing a long boom. House price are still falling rapidly in the UK.
Now that interest rates are falling the banks have a problem of how low they can go with their mortgage rates. They make profits from selling money for example in the form of a loan or mortgage. And paying interest to savers. With these two transactions there must be a profit. So they cannot go to low with their mortgage rates.
http://www.mortgagehome.co.uk/mortgage_charges.htm
