Northern Ireland homeowners struggling to pay the mortgage were were given a little comfort yesterday after a surprise 0.5% cut in interest rates.
The Bank of England’s decision to cut its rates to 4.5% was part of a co-ordinated global effort by six central banks to calm the current financial crisis.
And while the step has failed to cheer world stock markets it does mean more money in the pockets of hard-up householders with variable and tracker mortgages.
For example those with a £120,000 mortgage will have an extra £40 each month.
Some of Northern Ireland’s ‘big four’ have already decided to pass on the savings to their borrowers with both the Northern Bank and Ulster Bank announcing reductions.
Last night the Northern Bank said it was dropping interest rates on all ‘Base Rate’ related products by the 0.5% bringing its Standard Variable Rate mortgage down from 7.15% to 6.65% as of Monday, October 13.
The Ulster Bank also said that its Standard Variable Mortgages Rate would be cut by 0.5% from October 20 for new customers and from November 1 for existing customers.
Meanwhile Michael Smyth, head of economics at the University of Ulster, has predicted further interest rate cuts before Christmas.
“I wouldn’t be surprised at all if you see a succession of either another half or a series or quarter point reductions now in the run up to Christmas,” he told the Belfast Telegraph.
“It’s very late in the day. People have been urging the Bank of England to be more aware of the state of the economy rather than the stupid inflation rate. But they are finally reacting.
“The fact that there was a co-ordinated move by all the leading OECD economies I think is very significant and it does signal a new solidarity that hasn’t been there. This crisis is affecting everybody. No one is immune from it and they have realised if we are going to beat it they are going to have to work more closely together.
“It will give some relief to some households but I think the fact that interest rates were cut so dramatically and are likely to go down further, probably is a good thing for the months ahead. If the other parts of this rescue package work it means that credit will become cheaper, assuming it is available,” he added.
The move by the Bank of England came just hours after the Government announced a rescue scheme where taxpayers would fund a £50bn part nationalisation of the UK’s biggest banks to help fight the global financial meltdown.
However it is thought not all banks will conform with the cuts.
Said Mr Smyth: “If they cut mortgage rates they will also cut deposit rates. Banks now need to attract new deposits to stimulate lending so there is a bit of dilemma and I can see some banks holding back that don’t particularly want new mortgage business but want to attract savers in.”
Earlier yesterday, Michael Coogan, the director general of the Council of Mortgage Lenders, hailed the bank funding package and rate cut. “All this decisive action augurs well for an improving market situation looking ahead, even though no-one is pretending the tough times are over yet,” he said.
But Louise Cuming, head of mortgages at moneysupermarket.com, warned: “This is not a magic cure-all and we won't see the mortgage or the housing market bouncing back to where it was 18 months ago.”