Base rate cut cannot ease mortgage lending

Ahead of today’s expected cut in the Bank of England’s base rate, the Association of Mortgage Intermediaries (AMI) has warned that any reduction in interest rates will not address the real issues in the UK economy.

While mortgage borrowers on base rate trackers and some on lenders’ standard variable rates will benefit from a further rate cut, it would not address the shortage of mortgage funding that has deeply depressed the housing market.

AMI is therefore calling for wider government intervention to improve liquidity.

The association’s director, Robert Sinclair, believes today’s decision by the bank’s Monetary Policy Committee is unlikely to have the desired effect and will not be fully passed on by lenders.

He explains that banks continue to be constrained by increasing capital requirements and that for the mortgage market to recover, the Government must fully implement the recommendations of the Crosby Review.

The review suggests that Government-backed guarantees for billions of pounds of mortgage market bonds could free-up lending.

Ministers are reported to be considering such a move plus buying up toxic assets and creating a bank for bad debt.

Both measures could help restore confidence in interbank lending but with November figures from the Bank of England showing mortgage approvals for house purchases down 67.1% year-on-year (to a mere 27,000), the need for action is urgent.

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