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Your Money > Mortgages Articles > Has Northern Rock...
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By Sarah Modlock
The queues have disappeared and calm seems to have replaced the chaos that ensued when Northern Rock applied for it's hefty overdraft earlier this month. But will there be any lasting effects? Is talk of a negative impact on the economy and housing The real answer to these questions is that it is probably too early to tell but the biggest wobble is likely to have been in the share price rather than on the UK economy as a whole. And although mortgage figures and property sales slowed during the summer, forecasts for the housing market throughout the rest of this year and into 2008 remain positive, even if growth is expected to be slower and smaller. This is not just UK-centric. The Spanish downturn is well-documented but France and even Switzerland are reporting decelerated housing markets. Base rate same or lower Perhaps the biggest influence on our economy so far this month has come from nowhere near home. The US central bank, the Fed, had been tipped to cut interest rates from 5.25% this month as it tried to stem the economic downturn caused by problems in the US housing market its homegrown credit crunch. But when the rate was boldly slashed by 50 points to 4.75%, many were pleasantly surprised. Share prices in London, New York and Asia enjoyed a welcome boost and if we factor in our lower inflation (now 1.8%), we now have a more realistic chance of the Bank of England cutting the base rate although this may not happen at its next meeting in the first week of October. Even a 'no change' decision will be a welcome respite for millions; UK interest rates have climbed five times since August 2006 to their present 5.75%. Until recently, there was little hope that inflation and other factors would be sufficiently healthy in time for a reduction this year. If the rate cut does not come next month then don't lose heart. There is little chance of the rate rising and the Monetary Policy Committee is sure to have one eye on the looming festive season (cannot bring myself to use the C-word just yet) and attendant credit splurge. Fixed rate mortgages are already beginning to settle back to more realistic rates but the industry remains cautious: "Lending fell slightly in August, but was still at very high levels," confirms Michael Coogan of the Council of Mortgage Lenders. "We see no obvious decline in consumer demand, although some decrease in the supply of lending is being experienced in the short term as a result of the problems lenders face in raising wholesale funding. The events of the past week have shown us how very quickly situations can change. Even after the good news on inflation falling back, the Fed's rate cut, and the Bank of England's support for 3-month funding, it is not a given that the Bank will follow suit on cutting rates. It makes sense for consumers to continue to plan for rates at or about their current levels for the foreseeable future - we are not out of the woods yet," he warns.
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