A glimmer of hope?

7:00am Saturday 15th November 2008

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By now I think we will all have heard about the mighty rate cut by the Bank of England on the 6th of November of 1.5%. This is the lowest rate that the base rate has seen for 54 years, which means that any one who has a mortgage now, will never have seen this type of rate before.

More importantly, the LIBOR rate has changed too. This is the inter bank lending rate which has changed from 5.56% to 4.5%. This is the rate that banks charge one another when lending to each other. This may inject a bit more confidence in to the market, but we will have to wait and see!

The big question is, will these rate changes have the affect of kick starting the housing market? The good news is that a good proportion of the banks have taken this one on the chin and decided to apply the base rate change to their standard variable rates. What does this actually mean though for Joe Bloggs who either has or wants a mortgage?

If you are on the standard variable rate with your lender at the moment and 10% of lenders are, then the monthly payment you are on should reduce substantially, if you had a £100,000 mortgage this could be as much as £125 a month!

If you are in the 50% group of lenders who are on fixed rates, then of course you are on the same payment until your deal ends. If your deal is coming to an end soon however, it is really worth considering whether to just pay the lenders standard variable rate that you automatically adjust back to. This is because, it may be lower than new deal rates and it does not have application fees or valuation fees attached.

If your mortgage is in the 40% group of tracker rates, then your payment should reduce by the 1.5%, again saving you money. However if you are about to come off a tracker rate, you will only be able to get new tracker rates that track the base rate at 2-3% above the base rate, you should consider very carefully whether to go on to these, as they are ok now when the rates are so low, but if they do start to go back up again, you should consider the affect that this may have on the amount you would have to pay. These usually have application fees and valuation fees attached.

We still are looking at the unsolved problem of lenders tightening their criteria. Lenders will judge your credit score a lot more harshly as they do not want high risk customers any more and the bigger deposit or higher amount of equity in your house that you have, will mean that you will get a much better interest rate, therefore lower monthly repayments. Self-cert mortgages are a lot more difficult to find and if you want to do an interest only mortgage now, the lender wants to see evidence of how you are going to repay them in the future, again they want low risk.

Deposits are the "Big Deal", if you have a substantial deposit of 75% of the value of your property, you could get excellent rates as low as 4.99%, 80% deposits are coming out at about 5.3-6.5% but then 90% loans are now between 6.5-7.5%. As you can see the amount of the deposit you have or the amount of equity in your house is a really big deal as it affects the monthly payments in a big way. As house prices drop, the amount of equity in your property is being eroded, this has even put many people in to negative equity, which makes it very difficult to either move or get a new deal with their mortgage.

Let's all hold our breaths and hope that confidence will return to the housing market as this really affects every one, even people renting have the knock on effect from their landlords.

JANE PRICE Nashelm Mortgage Solutions.