Base rate cut to 2%
Date: 04 December 2008

The Bank of England has slashed interest rates by a full percentage point to 2%, taking them to their lowest level since 1951.

The move follows last month's shock 1.5% cut and means base rate has plunged 3% in the last three months.

It now remains to be seen which mortgage lenders decide to pass the reduction on to their customers.

Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, promised to pass on any cut in full to its standard variable mortgage rate before the announcement had been made.

Halifax has also said that its existing tracker mortgage customers will benefit from the full 1% reduction, overriding a clause in its mortgage arrangements saying it doesn't have to continue cutting its rates once base rate falls below 3%.

(Moneyfacts.co.uk)




Shock base rate cut – one month on
Date: 04 December 2008

Today we can get a better picture of how the shock 1.50% cut in base rate last month affected the mortgage and savings markets and it doesn't make for good reading.

75% of mortgage lenders failed to pass the 1.50% cut on in full to their SVR, but 92% of providers passed the cut on in full or more to their savings rates.

Michelle Slade, analyst at Moneyfacts.co.uk, comments: "Both borrowers and savers have been penalised following the last base rate cut and it is hard to believe that it will be any different if base rate is cut again.

"Many of the large high street banks passed the cuts on equally to SVR's and savers. However, Barclays Bank, through its Woolwich brand, failed to pass on any cut to its SVR, but cut its savings rates by up to 1.75%.

"Savers need to be vigilant on the rate they are receiving as if base rate continues to fall, we could end up with a situation where the vast majority of accounts pay less than 1.0% interest.

"Mortgage rates for new customers are starting to come down, but nowhere near as quickly as they should or expected.

"Fixed rate mortgages are the worst hit, with the gap between the cost to the lender of obtaining the money on the money markets and the average rate widening rather than decreasing.

"Many lenders which withdrew tracker mortgages straight after the last cut have not replaced them and are unlikely to do so in the near future, particularly if base rate is cut again.

"Borrowers will be disappointed that they are not really feeling the full benefit and will be hoping that, as speculated, the banks and building societies will be forced to pass any future cuts on in full.

"Previously the cost of obtaining funding in the money markets has been cited as the reason for the lack of lending, but this has come down 1.72 basis points since the last cut and it's about time this was passed on to mortgage deals."

(Moneyfacts)




Pre-Budget Report 2008
----------------------
Alistair Darling's Pre-Budget Report contained a raft of announcements of
concern to small business owners. Here are the main points affecting small
businesses;

1. The main rate of Value Added Tax will, from December 1st, be reduced
from 17.5% to 15% until the end of 2009.

2. Deferral of the increase in the small companies' rate of corporation
tax. The rate will stay at 21% from April, instead of rising to 22%.

3. National Insurance rates will increase by 0.5% from 2011 - for both
employers and employees.

4. A 45% rate income tax band will apply to salaries of £150,000 and above
from after the next General Election.

5. The £120 rebate for basic rate taxpayers - introduced after the "10%
rate fiasco", will remain and will be increased to £145 from April 2009.

6. The so-called "income shifting" legislation will not, after all, be
included in the Finance Act 2009.

7. A new Small Business Finance Scheme to support up to £1 billion of bank
lending; a separate £1 billion guarantee facility to support bank lending
to small exporters; a £50 million fund to convert businesses' debt into
equity; and a £25 million regional loan transition fund.

8. Introduction of a new HMRC Business Payment Support Service to allow
businesses in temporary financial difficulty to pay their HMRC tax bills on
a timetable they can afford.

9. Changes to the taxation of foreign profits - including the introduction
of a foreign dividend exemption for large and medium-sized businesses,
supported by a worldwide debt cap on interest.






More choice, lower rent?
Date: 19th November 2008

Quarter 3 found rents dropping as potential sellers flood the market with unsellable properties, according to RICS Letting Survey (published 18th November 2008)

There is a record high of surveyors confirming new instructions to let flats and houses - a 50% increase in flats and a 68% increase in houses were reported. Vendors have been left feeling frustrated by lack of demand for sales in the housing market, so have been placing their property in the letting market.

The influx into the market of ‘To-Let' properties has forced downward pressure on rents, with the lowest level in the survey's history (from a positive 31% in Q2 to a negative -12% in Q3). London and the Southeast have been hardest hit and expectations for future rises turned pessimistic for the first time since July 2002.

Although housing transactions are at their lowest level since records began, demand for rental property has remained positive in Q3. 27% more Chartered Surveyors reported a rise, rather than a fall, in rental demand.

James Scott-Lee (RICS spokesperson) commented:"The lettings sector has witnessed a boom in 2008 as sales in the housing market continued to slow. Many have been able to take advantage of rising rents to secure good returns. However, the market place has become more and more competitive as many vendors have been forced to become amateur landlords, creating an inevitable downward pressure on rents where supply has matched demand. With national average house prices set to weaken in 2009, yields may increase for those investors who can provide the right product for the right market place."

(Moneyfacts.co.uk)





Lenders: we’re not profiteering

The Council of Mortgage Lenders (CML) has responded to the widespread negative press lenders have been receiving for not passing on the full rate cut of 1.5% made last week by the MPC.

Many high street lenders have come under attack for ignoring the Chancellor’s pleas to pass on the interest rate cuts and withdrawing many of their tracker products.

Now the CML has hit back at critics, claiming that it doesn’t make “commercial sense” to pass on Bank rate cuts to borrowers until the cut “flows through” to an equivalent reduction in their own funding costs.

The CML states that this is the case as the Bank’s base rate does not determine the real cost of funds to lenders, moreover it is their own cost of borrowing that does this. The cost of borrowing depends on a number of things, including what banks must pay to savers in order to attract deposits and how much it costs to borrow from other banks or money markets. There are also the costs of holding capital and sufficient liquidity, which are vital factors right now due to market turbulence.

Arguing that lenders are not simply profiteering by not following base rate reductions, the CML warned that in this “post credit crunch environment” mortgage prices are not likely to return to the “very narrow margins of the pre-crunch era” – regardless of any change to interest rates.

11th November - (Debt Management Today)





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