Homeowners face time-lag on BoE’s £50bn rescue package

While today’s unprecedented action by the Bank of England in injecting £50 billion into the money markets is good new for homeowners and potential first-time buyers, it could be some months before the benefits are seen in terms of reduced mortgage interest rates and borrower-friendly lending criteria.

Under the scheme, which has become effective immediately, banks are able to swap assets that have become difficult to trade because of the credit crisis, with government bonds.

However, lenders will only be able to swap assets that were in place at the end of last year and the scheme will not, therefore, help fund new lending.

In addition, a number of banks are expected to follow RBS in rights issues aimed at shoring up their balance sheets and will be looking to their profit margins, as well as the opportunity to reduce interest rates.

While the measures announced today will increase the likelihood of cuts in the base rate being passed on to homeowners, the governor of the Bank of England, Mervyn King, is anxious to prevent the mortgage market returning to its pre-credit crisis state, when lenders were not necessarily passing on the full extent of the cost of borrowing on the money markets.

Meanwhile, Chancellor of the Exchequer, Alistair Darling, is reported to be working on plans to allow homeowners in financial difficulty to take a “mortgage holiday”.

It is understood that Mr Darling would like to see more flexible mortgage schemes that could give borrowers with sound credit histories the chance to miss occasional payments and make up the shortfall during the lifetime of the mortgage.

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