Lowest ever interest rates are both good and bad for UK housing market
And so it has happened. Interest rates in the UK have been reduced to just 0.25%, the lowest ever and some experts, economic and financial, think they could come down even more to 0.2% or 0.1% if there are further signs that a Brexit is damaging the economy even more than it already has.
The big question is whether or not this is good for the housing market. It certainly should be, with some home owners on trackers already seeing the lower rate being passed on by their lender and the expectation that those on fixed rates can choose from even better deals when they come to remortgage.
It comes at a time when house price growth is slowing and experts are predicting that they will start falling in the second half of this year due to the decision by the UK to leave the European Union. Indeed, according to S&P Global, the UK will be the only major player in the EU to see house prices fall.
This all points to good news for first-time buyers, or does it? Lower interest rates and prices falling are certainly good news for first-time buyers. But those first timers, regarded as the lifeblood of the housing ladder, need to save for a deposit.
Lower interest rates will hit savers, including those saving for a deposit to buy a house. Borrowers also remain subject to the rigorous affordability checks introduced in the Mortgage Market Review (MMR), which prevent lenders from advancing significantly more loans to first-time buyers.
So, the winners will be remortgagers and those on tracker rates, but those most in need, the first time buyers, will continue to find conditions challenging from a financial perspective.
For first-time buyers there is also the issue of choice. The UK is desperately short of housing and this shortfall compared to demand has been one issue that has contributed to rising prices. So-called Starter Homes are not sufficient to meet demand and it will be some time before the initiatives being introduced by the government will filter through to actual homes ready to buy.
In London, the situation is even more acute with firsttime buyers having to save for much higher deposits and borrow more than those elsewhere in the country. No set of initiatives or new policies are going to change that. Indeed, recent research suggests that young families, or those planning a family, are increasingly moving out of London to commuter towns in search of lower prices, but if this continues on a large scale, it will just affect prices and demand in these locations too.
Then there is the possibility, which has been denied by Bank of England Governor Mark Carney, but not ruled out by economic commentators, that the rate could even be brought down to 0%. That could hit first-time buyers saving for a deposit even harder.