I am in the unfortunate situation of having to re-mortgage and so I can see just how scary it is out there at the moment. I have enjoyed a 4.6% mortgage rate for the last two years with monthly payments of £456. The very best rate that I can get is 5.79% with a monthly repayment of £576 (with a re-mortgage fee of £995!)
Base rates were 0.5% lower in April 2006 than they are now (assuming that the BofE cuts rates by 25 points on Thursday.) But the mortgage rate available to me is 1.23% higher with less favourable terms though (because I'm staying with the same provider) better than available in the market more generally. Today's interest rate cut is unlikely to filter through into lower fixed rate mortgages as the issue is the global 'credit crunch' rather than base rates. You lucky, lucky people on tracker mortgages. How I envy you.
Now today, Halifax has announced the biggest monthly fall in house prices since September 1992. Why is September 1992 so important? Black Wednesday was on the 16th September 1992. Interest rates went temporarily to 15%. Shudder.
Of course, we are not remotely in that type of environment but there is little doubt that the housing market is going to take a bit of a battering unless the flow of mortgages to the market increases and soon. Alastair Darling is engaged in multilateral discussions with his American counter-parts about putting a floor under mortgage backed assets. Decisive action may be necessary to re-stabilise the market. Politically difficult as that may be, the alternative could be worse. It is all very well pontificating about moral hazard, but those academic debates are probably best left for a more benign financial environment.
The good news is that while the economy retains its robustness, the current crisis should be containable. If this feeds through into the real economy in any real way and precipitates job losses then things could get very hairy indeed: a further argument for decisive action.
I'm afraid people who have purchased in the last two to three years are going to feel the pinch and first-time buyers are going to have to rent for a while longer (that may be no bad thing for them in the longer term.) I can afford to take the financial hit in the short term. The problem is for those who can not and that's why things need to be returned to an even keel ASAP.