Home › News › Quick house sale can ease credit crunch pain
The Bank of England’s decision to cut interest rates by a quarter of one per cent will have little impact on the millions of UK mortgage holders who are suffering in the fallout of the 2007 “credit crunch”. Considering a quick house sale could ease their pain significantly.
The latest quarter-point cut brings the Bank's base rate to 5.5 per cent – but still leaves it a whole percentage point higher than two years ago. Borrowers who took out a loan at a little over four per cent in 2005 will, on average, be paying around £80 a month more on their current mortgage payments today than they were.
Some mortgage lenders will pass the full quarter-point cut on to their customers. But with banks lending each other money at about 6.6 per cent – a lot further above the Bank of England rate than usual – it is believed that most lenders will only cut their mortgage rates by less than the full amount. And some may not cut them at all.
Alternatives to quick house sale going fast
Before this summer, there was a wide range of other mortgages for the beleaguered borrower to consider switching to. The consumer, for once, had the upper hand as banks fell over themselves to offer loans to customers – to the extent that some, like the Northern Rock, just fell over. The rest, now panicked by the sight of queues of people waiting to withdraw their savings, are cutting back their lending – and the juicy mortgage deals have all but disappeared.
However, many people – including wealthy investors, for whom a couple of interest-rate changes make little difference – are looking at the combination of high house prices and high mortgage rates and drawing an obvious conclusion: get a quick house sale, rent for a while, and then buy again when mortgages and house prices are cheaper.
Quick house sale doesn't mean loss of security
By getting a quick house sale, they instantly solve their mortgage problems. There's still rent to be paid, of course, but no buildings insurance, maintenance and repair costs – and, unless you have a habit of setting fire to your shed, as much security in the home you rent as there is in the one you own.
It can also free up any cash secured in your home – known as equity – in order to pay off more expensive debts, like credit card and storecard debts or personal loans. Many people have been hit by the rises in credit card repayment rates, making the credit crunch even more painful.
At some point in the future earnings will catch up with house prices again, either by one rising or the other falling, and buying a house will again make financial sense. But for now, a lot of people are easing their credit crunch pain with a quick house sale.
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