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Interest Rates Slashed Again.

The Bank Of England has cut the rate of interest again today by 0.5% to bring it to its lowest ever rate of 1%. In a statement by the Bank Of England said the global economy was in the throes of “a severe and synchronised downturn”.

Bank’s Recent Rate Decisions

 Sky News Money Panel member Ian McCafferty, the CBI’s chief economic adviser, welcomed the cut.

He said: “This drop in rates should support business confidence and, when added to recent cuts of the past couple of months and the fall in the pound, provides a very significant stimulus to the ailing economy.”

If passed on in its entirety, the cut will save someone with a £150,000 mortgage around £40 a month.

People who are more heavily mortgaged with a £250,000 home loan will be £66 a month better off.

But around 300,000 customers with tracker mortgages will not benefit from the cut, as so-called ‘collars’ have already kicked in on their loans, meaning the rate they pay cannot fall any further.

The real question on my lips is will the lenders pass this on? Will they start to offer fixed rate mortgages that are below 4.99% for the duration of the fixed period?

Hopefully the Home Information Pack market will now increase as more and more houses come on to the market and mortgages become cheaper.

HSBC have promised to increase the amount it lends next year. They are enlarging its planned mortgage fund in Britain to £15bn, a 20% increase on this year and almost double the amount it lent in 2007.

HSBC were one of the few banks to pass on the entire 1% cut in iterest rates last week, however it only reduced it’s standard variable rate by 0.8% in response to the previous 1.5% cut by the Bank.

Paul Thurston, HSBC’s UK managing director, said the bank “has no intention of closing its doors to customers”. HSBC lent £7.8bn in mortgages in the UK in 2007 and £12.8bn this year. It has 350,000 UK mortgage customers.

Mortgage brokers welcomed the move but said it would not boost the first-time buyer market and it would help only borrowers looking to remortgage who have a decent chunk of equity in their home.

The move is also being welcomed by government ministers who have been trying to encourage banks and building societies to resume lending in the hope of getting the moribund housing market moving again.

Melanie Bien, a director of independent mortgage broker Savills Private Finance, said: “HSBC’s move, in theory, is welcome – but we wait to see how it will be applied in practice to ensure it isn’t just a PR stunt. The plus-75pc LTV arena [borrowers with a deposit of less than 25%] is one where borrowers are struggling to remortgage and first-time buyers are facing difficulty in buying so it would make sense to allocate extra funding in this area.

The Bank of England governor, Mervyn King, said recently that getting banks lending again was the single most pressing challenge facing policymakers. Alistair Darling, the chancellor, will ratchet up pressure on banks this week to pass on the recent interest rate cuts to their customers to kickstart the market.

John McFall, chair of the Treasury select committee, said: “I’m extremely pleased to see HSBC’s initiatives this weekend. Making money available for lending is one of the most important economic issues facing us today.”

HSBC said it had seen an opportunity to increase its share of the market as others pulled back during the credit crunch, but it would not be relaxing its lending criteria. Most first-time buyers will still be required to find a 10% deposit, although some other banks are demanding deposits of up to 25%.

The government has told banks accepting its £37bn bailout that they must continue to lend at last year’s levels. But the volume of money being lent continues to shrink. Figures released last week showed new mortgage approvals fell to just 32,000 in October, the joint lowest number on record. Overall mortgage lending fell to just £459m, a third of the £1.49bn lent in September and down from the £8bn lent a year ago.

For people who want to buy a house, good mortgage deals remain, especially for those with a sizeable deposit.