According to Savills research, whilst this weeks interest rate cut may be good news for the economy and thereby provide some comfort for homeowners, the extent of the impact on the housing market could be limited.

Even assuming that the rate cut filters through to the mortgage market, it is a lack of availability of funds that is having the biggest impact on housing demand. Ultimately much will depend on whether the measures to introduce capital into the lending markets allow margins over base rates to fall.

The biggest issue for the housing market remains the extraordinarily low levels of turnover caused by a constrained mortgage market, whilst the cut in interest rates could be key to economic recovery, the key to a housing market is the recapitalisation of lending institutions. In future years, this may mean a return to a more regulated market, more akin to the 1970s than the 1990s and noughties, where mortgage lending is decoupled from wholesale money market rates and more closely linked to (higher) deposit rates.

Yolande Barnes, Director Savills research comments, “The best we can hope for in the short term is a reduction in the unprecedented rates of house price falls. Over the medium term it may curb the extent of the downturn although the most likely outcome is that it will improve the prospects of a return to house price growth in 2010/2011.”

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