Page last updated at 18:07 GMT, Thursday, 6 November 2008

Will interest rate cuts help people?

The Bank of England has cut interest rates by 1.5 percentage points to 3%, setting them at a 53-year low. But will this help homeowners, savers and businesses?


Ms Bodle's partner lost his job as a driver on Wednesday, so the rate cut is a glimmer of good news for the couple.

After her fixed rate mortgage of 3.99% on 70,000 ended in September she took out a tracker deal with the Halifax, and her repayments rose by 80 a month.

Her pay rise at her council job meant she had 35 a month more in her wage packet after tax, but she still had to find 45 extra to cover the increase.

"It's a real relief. Last night we were worrying about how to pay the mortgage and bills," she said.

"In the office we were all hoping for half a per cent cut, so when they announced it was one and a half, it was a weight lifted off my shoulders.

"It will work out as about an extra 50 in my pocket, which can mean the difference losing your house and keeping it."


Tom Sheridan
Tom Sheridan: Fears the move may be too little, too late

The house-building industry is affected by the financial crisis on a number of levels, and Mr Sheridan says he fears the cut might be "too little, too late".

He says it may help if the banks use the rate cuts to cut the amount his company pays to borrow money for developments.

They often borrow at a rate a few points above the Bank of England base rate, which would means the reduction would help. But they also borrow on the Libor rate, which would not be affected.

"Banks are not lending as much as they used to. The cost of borrowing is not as much of a problem as how much you can get from them. If they will lend us 10% less on a 1m project, that's 100,000 we have to find somewhere else," he says.

He hopes it may encourage first-time buyers to get mortgages, if they think they might get a better deal.

"But it's too early to see what impact the interest rate cut will have over the coming months.

"The housing market has slowed down but hopefully this is the trough of the drop. If the banks can get confidence back up it will help, but we're dealing with small amounts here."

Mr Sheridan, 36, of Weybridge in Surrey says they are just focusing on getting through the crisis.

"It's very difficult to paint a positive picture for 2009 but we are trying to resolve things short-term."


Mike Eckhoff
Mike Eckhoff: Says the rate cut does not benefit him

Mr Eckhoff, 57, from Earley, near Reading, Berkshire, was a museum assistant until his contract ended three years ago. He has since been living off his savings while unsuccessfully trying to find work.

Mr Eckhoff lives off 8,000 interest from about 200,000 in savings from the proceeds of his parents' 160,000 house that he sold when they died, and his own life savings.

He says his small income is an attempt not to cut into this capital. If he did, he estimates he would be bankrupt in 10 years.

He says that due to his savings he is unable to claim benefits - he thinks the maximum savings someone can have and still claim benefits is about 16,000.

The interest rate cut does not benefit him via reduced mortgage payments as the mortgage on the house he lives in is already paid off. He lives with his partner and has no children.

"I think... about 8,000 was the interest I received every year. Now the interest rate's cut by 1.5%, I'm going to be down to about 6,000 a year, which is not enough to live on.

"I live with my partner, if I didn't live with my partner I'd be in a cardboard box on the street, and if I spent what I have on a mortgage, I'd have nothing to live on.

"My major fear for the future is that if this gets worse I'm just not going to have enough coming in, but I've got too much to claim. I'd be much better off if I'd spent the lot and then the government would bail me out.

"Unfortunately it looks a little bit that the people who haven't thought about the future, they're the ones we look after. But if you've saved money for your future, then you're not in a position to claim anything and no-one seems to bother about you."


Charles Okwalinga
Charles Okwalinga: No immediate help likely with cut

Mr Okwalinga, 46, and his wife bought their house in Lewisham, south east London, from a housing association four years ago.

They are currently living under the threat of eviction after falling behind on their mortgage repayments. They run a restaurant in Hackney which is suffering from the economic slowdown.

He said the opportunity to renegotiate the level of arrears they are paying would help them more than the interest rate cut.

The couple took out a 167,000 mortgage on the property, paying 950 a month at first, it soared to 1,400, and has now settled at 1,300 a month.

"We fell behind with our payments when our income was very unsteady and pressure was put on us because the mortgage company wanted the arrears straight away," he said.

The couple were taken to court and negotiated to pay 200 a month on top of their basic mortgage payment.

"It's very steep," he said. "I'm having sleepless nights because I know there is a court order on their desk saying they can evict us if we fall behind, without taking us back to court.

"The interest rate cut might not help us immediately. We're hoping there will be new directives to require the mortgage companies to renegotiate to ensure we have a roof over our heads."

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