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Further interest rate cuts will damage savers and new borrowers

“This drop in income is particularly serious for pensioners who have saved all their lives and now face a sharp reduction in their income and living standards. For pensioners dependent upon their interest income from their savings rather than their pension, prices would have to fall by an unimaginable 75% for them to maintain their living standards.”

Mr Coles acknowledged that falling interest rates had benefited variable rate mortgage borrowers, but said that mortgage availability was now a greater concern to borrowers than costs.

He said: “The BSA’s Property Tracker survey found that affording the monthly mortgage payments was considered a barrier to home purchase by 37% of respondents in December, down from 70% in June 2008 as interest rates fell. However, concerns over getting a large enough mortgage or getting a mortgage altogether increased from 49% to 56% over the same period. 

“So mortgage availability, rather than the cost of mortgages, has become a more pressing issue over the last few months.  This suggests that what is important to potential borrowers is maintaining the flow of mortgage funds to the market rather than reducing interest rates further.  

“Building societies and their subsidiaries were responsible for 62% of net lending in the fourth quarter of 2008 – a further reduction in interest rates now will make people even less likely to save and disrupt further the flow of funds into the mortgage market, which is already significantly short of lending potential.    

“We need to ensure that those with at least some capacity to supply funds for mortgage lending – personal savers – are encouraged to do just that, and that requires the MPC to refrain from making further cuts to the Bank Rate at least until the impact of recent reductions becomes clearer.” 

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