Bank of England reduces the base rate to 5.5%

The Bank of England announced on 6 December 2007 that the base rate has been reduced to 5.5%, down from 5.75%, following warnings of a slowdown in the economy and falling house prices across the UK.

The cut in interest rates comes at a time when consumer confidence is falling and concerns grow about the number of homeowners about to come off low fixed rate mortgages and to revert to significantly higher interest rates. Michael Coogan, Director General of the Council of Mortgage Lenders, commented, "A reduction in interest rates is exactly what the market needs and will benefit consumers. This will reduce the risk of payment shock for the 1.4 million borrowers coming off fixed rates in the next year".

According to Moneyfacts, the interest rate cut will mean a saving of between £15 and £20 a month for the average borrower with a £100,000 mortgage.

Both Nationwide and Halifax, the UK's two biggest mortgage lenders, cut their mortgage rates immediately in response to the announcement, but there are fears that many lenders may be reticent to pass on the benefits of the base rate reduction, leaving many more borrowers exposed.

Meanwhile, according to the Primelocation.com House Price Index, average sale prices in some areas of London, and more widely across the UK, dipped again in November, prompting fears that a price correction could be about to take place.

Ian Springett, Chief Executive of Primelocation.com, states, "In the prime property market, buyers seem to be adopting a 'wait and see' approach, with a reluctance to transact in the current climate. As property stock continues to accumulate on the market, many buyers are keeping a cautious eye on the uncertainty in the money markets, while others are merely holding out for prices to fall further before investing in property. If the latter is the case, we may yet see a price adjustment to come".