Industry welcomes 0.25% interest rate cut

Interest rates have been cut to 5% from 5.25% by the Bank of England in an effort to revive the flagging economy.

It is the third interest rate cut by the banks 's Monetary Policy Committee (MPC) since December.

It is thought that the credit crunch and falling house prices are behind the decision, although it is unlikely that mortgage lenders will pass on the reduction to homeowners.

The move was broadly welcomed in the industry. John Stewart, director of ecomic affairs at the House Builders Federation, said: "It is welcome news for the housing market. I would have preferred 0.5% cut, but a 0.25% cut is better than nothing.

"The Bank of England feels constrained by fears over inflation but if you read their statement you see that there is increasing concern that the real risk is to the economy."

Michael Coogan, director general of the Council of Mortgage Lenders, commented: “This is good news for those borrowers with mortgages tracking the Bank base rate.

“To improve the market in which lenders are operating and restore consumer confidence, the Bank needs to coordinate successive base rate cuts with further injections of more widely available liquidity.

Robert Bryant-Pearson, chief Executive of Allied Surveyors, said: “Today’s rate cut of 0.25% will come as a relief and signals that the fear of a recession is greater than the fear of inflation. The credit squeeze is already exerting a greater effect on consumer spending than the rate cut.

“Although certain sectors of the property market will see a downwards adjustment, this will contribute significantly to overall house price stabilisation.”

David Bexon, managing director of SmartNewHomes.com, said: “We now need to see the Bank of England take steps to improve levels of liquidity in the market if it is to make any significant impact on today’s borrowers.

“Gross lending fell by as much as 7% in February, in part as a direct result from the reduced number of mortgage offerings currently in the market place. ”

Chris Coates, managing Ddirector of Galliford Try Homes, commented: “While an interest rate cut is welcomed it is unlikely to be passed on to homeowners while the banks continue to penalise borrowers in an attempt to reconcile their balance sheets following their own short-sighted investments.

“HSBC’s move to introduce some competition back into the mortgage market is to be applauded. Other lenders should take heed and start lending again on more favourable terms to the vast numbers of sound potential borrowers still in the market place.”