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More Rate Cuts Lead the Way

We could be heading towards some of the cheapest loans in over 2 years if the UK follows the US Central Bank and cuts interest rates again this week.

The rate of interest charged on federal funds was reduced for a second time in just nine days last week when the Federal Reserve slashed charges by a further 0.5%. This came on the back of a previous 0.75% reduction only a few days earlier.

The american economy is predicted to slow significantly and, compounded with falling house prices and the discovery that many recent home loans were provided to spplicants with poor credit records, could spell hardship for many families if repossessions start to increase.

With many banks reorganising their lending rules to prevent a return to mass adverse credit lending that caused billions of dollars of losses in the american financial system, many US homeowners will be able to use the rate cuts as lifelines to affordable home loan repayments.

One major fall-out of the credit crunch losses has been a big reluctance for investors to fund anything that might be remotely related to adverse credit loans and because of this new caution, many loans companies are finding it difficult to secure relevant funding for their loans.

However for applicants with clean credit records who would ordinarily qualify for the cheapest loans, the news is great all round. Loans of that type are set to get even cheaper. The US hasn't seen loan interest rates as low as this since 2005.

We expect to have to wait until April or May before we see some stabilisation returning to the markets and it will be interesting to see if rates are increased slightly once the worst is over.

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