Borrower circumstances affect the effectiveness of interest rate cut

While last week's interest rate cut is undoubtedly a good thing for borrowers, its beneficial effects in 2008 are dependant on individual circumstances, a mortgage expert has warned.

The Bank of England's decision to reduce interest rates by 0.25 per cent, to 5.5 per cent, should help to increase confidence in the mortgage market, claimed Sue Anderson, head of external affairs at the Council of Mortgage Lenders.

However, borrowers who have had credit problems in the past or who are coming to the end of a sub prime mortgage in 2008 may find it harder to secure a positive deal.

"[The interest rate cut] is exactly what the market needed, it helps to underpin confidence again and it helps to restore faith that the authorities do have an eye on what is happening on the consumer side of the economy," Ms Anderson explained.

"If you are someone further down the credit spectrum who has had problems in the past, you are coming off a sub-prime deal and are looking for a follow-on deal, you may find it harder still because that is where the availability of funding has tightened," she added.

Figures published by the Bank last month revealed that UK mortgage approvals fell to their lowest level in nearly three years in October, with 88,000 loans for house purchase given the go-ahead.

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