Base Rate down to 3% and VAT expected to reduce by 5.5% to 12%

So for me Gordon Brown has raised his profile and once again proved he’s the right man for the job during this recession. I’am not overly political nor I am I a staunch Labour, Conservative or Liberal voter, but I do like to read up on party manifesto when a general election nears.

Due to these interest rate and imminent tax cuts I am almost reminded of the Tory Government of the late eightees and early nineties where Government borrowing rose to record levels and the economy almost ground to a halt. Whilst I firmly believe that nothing like this will happen today I do have an air of scepticism over the reasons behind the new approach by a man whose leadership was in massive decline (Have you actually noticed how little we see of David Cameron on the TV right now?). It would of course be natural to assume the reasons behind all the changes are more likely to be because our leader is trying to poll extra votes and popularity in these tricky times.

I however, personally believe that Gordon Brown has took action, took the bull by the horns so to speak.

We all know that whilst Tony Blair was at Number 10 there were little chance of any real challenge to Party leadership and we further know that the man making important financial decisions behind the scenes was Gordon Brown. Could it be then that the new Chancellor is, dare I say, useless, and that Mr Brown himself has orchestrated these changes? I think so, and I’m now watching with anticipation to see how long it will take for a Cabinet re-shuffle.

So what about the rate cuts I hear you ask?

Well the biggest single problem in our housing market right now is the inability of First Time Buyers to get onto the property ladder due to a lack of deposit. I’m not advocating the return of 100% mortgages but I would like to see further reduction in house price values and a change in lending policy for the major banks and building societies that would allow more use of assisted deposit schemes (in that I’m referring to family gifts as opposed to negotiated reductions in the purchase price of a property).

Only when First Time Buyers can access properties will we begin to see an upturn in the economy, which will in turn facilitate and ease the burden on the Buy to Let investor market. So will the rate cuts actually improve the property market? Well the answer is a firm no! But it will help existing tracker mortgage payers and those people coming off fixed or discounted rate schemes as the payment shock scenario has been massively aided. Actually, this does have a profound effect even on the Buy to Let market but the problems there are not necessarily to do with the credit crunch, and more to do with extremely poor decisions by the newbie landlord under even worse advice from the mortgage broker and or developer (anybody who bought a new build apartment on a no-deposit down and cash-back deal must have had alarm bells ringing, even moreso if they were having to contribute to the mortgage payment each month).

The tax cuts won’t as mentioned suddenly get the housing market moving but will improve it slightly. The rate cuts will however, for sure, reduce the number of repossessions and significantly aid the majority of mortgage payers coming off schemes. The reduction in VAT would, if implemented, help small businesses and contribute also to the purchase price of material goods (assuming of course that retailers themselves do not act like the banks and refuse to pass on these cuts (but that’s another story)).

Summary:

• Gordon Brown’s profile has been raised
• Country to be in HUGE debt
• Cabinet re-shuffle imminent
• Rate cuts do not help First Time Buyers chances of getting onto the property ladder
• Further reduction in house prices needed
• Payment shock ‘massively’ aided by Bank of England’s decision to cut rates to 3%
• Talk of VAT reductions to help small businesses and consumers

Resources:

• Speak to Mortgage Adviser (External Link)
• Speak to Debt Adviser