The drop from 1 per cent to 0.5 per cent is the lowest Base Rate has ever fallen to in the Bank of England’s 300 year history.
The Bank has also revealed it will begin the process of printing Treasury bills to buy up bank assets, a form of quantative easing. It will initially print £75bn, distributed over the next three months.
Legal & General director of mortgages Ben Thompson says: “We’re so far into uncharted territory that Mervyn King must feel like Captain Cook. Few people know what to expect from quantitative easing and no-one knows how long the base rate will stay this low.
“The threat of deflation is hanging over our heads like an axe and all the while many people who want to take advantage of the depressed housing market to buy their first property or trade up are prevented from doing so because of the lack of mortgages available.
“Fixed rates at the higher end of the LTV curve have remained resolutely high and there is little prospect of them dropping significantly. Let’s hope that the proposed injection of lending from Northern Rock and others has some sort of effect and that we can all move on following the introduction of the Government’s Asset Protection Scheme.”
CML director general Michael Coogan says: “This latest cut presents immense challenges for lenders whose margins are already squeezed as a result of previous reductions, leaving little scope to lower discretionary mortgage rates further.
“Savings are the lifeblood of mortgage lending, and unless lenders can offer competitive rates to savers their ability to offer new mortgages is restricted.”