According to the Halifax house price inflation fell sharply at the end of last year, but rising at an annual rate of 5.2%. They still rose by 1.3% in December half the rate from three months earlier. “This mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market,” said Martin Ellis, chief economist at the Halifax.

There are many reasons now why rates need to be cut.

Businesses make capital and investment decisions based on possible growth of their companies. Or they may implement cost cutting measures.

The bad credit mortgages credit crunch has strangled credit; banks are in no mood to ease the pressure at the current rates.   

Economists tend to point to 4.5 to 5% as the neutral point. This is the level at which rates are seen as either slowing the economy or driving it forward. First time buyers might stand a chance of making a decision. Nobody wants to by at the wrong price.

It is hard to overstate the effect they have on consumers. Notwithstanding Halifax’s figures yesterday, the trend looks set for flat prices this year at best. Home-owners, used to the warm feeling from the automatic 10 or 20 per cent appreciation of their homes each year, are going to feel chillier and poorer.

 There is very little danger that a rate cut would produce an upturn in the housing market. Whatever happens to base rate, mortgage bills will remain much higher than then. The banks haven’t fully passed on last month’s cut. Remortgage rates shouldn’t change drastically.

The Bank of England meet this Thursday as they do every month. But the economic climate is still blowing up storm. Bad credit mortgages crisis is still hanging heavily in the wind. There is so much talk about house prices and people struggling to make ends meet never mind the increase in mortgage payments when they come of those fixed rates.

Remortgages are big business in 2008 “What will be the deal i can get” you will hear people cry. Location - location - location will be replaced with remortgage -remortgage remortgage!

New mortgage approvals have dropped again to 83′000 down from 89,000 in October which was the lowest since the start of 2005. House prices finished anywhere between 5-8% up depending on who statistics you agree with.

Although the Bank of England cut rates last month they are widely expected to cut them again this month due to the housing market slow down and the increased cost in borrowing due to the money markets feeling the effects the credit crunch.

Welcome news for borrowers, this will typically save borrowers between £15 & £20 per month on a 100′000 mortgage. Many of borrowers are facing the prospect of more expensive mortgage repayments as they come off short-term fixed-rate deals taken out when interest rates were lower. “This will reduce the risk of payment shock for the 1.4 million borrowers coming off fixed rates in the next year.”

The cut was expected by most chief economists as this week’s figures indicated that economic conditions had deteriorated over the past few weeks. The cut is aimed at preventing the slowdown getting out of control. It is the first cut since August 2005. Their view is another 0.25% cut is on the cards due to  CPI inflation still rising.

Will the lenders pass the mortgage rate cut on? Larger lenders such as the Halifax & Nationwide have passed on the saving to mortgage borrowers, so its likely that other lenders will follow suit to stay competitive.

As the number of people with Bad Credit Mortgages who are failing to make payments rises, the predicted losses for Wall Street looks like reaching half a trillion dollars.

The devastation of such losses could cause banks to re-evaluate and tighten their credit lending on Bad Credit Mortgages, which would then have a negative impact on economic growth for years to come.

Bad Credit Mortgages in the US have lead to many repossessions, which is predicted to result in halving the US growth rate in as little as six months.

The reason that this has happened, is that in order for banks to keep up with the growing number of Bad Credit Mortgages, banks have had to borrow money from credit markets. Already Wall Street banks have recorded losses that total $50bn (£24bn) and the head of the biggest bank, Citigroup, and the head of the biggest investment firm, have stepped down.

Potential Bank Liabilities:
Citibank: $90bn
JP Morgan Chase: $78bn
Bank of America: $58bn
ABN Amro: $44bn
HSBC: $34bn
ING: $32bn
Fortis: $28bn
State Street: $28bn
Wachovia: $26bn

It is also foreseen that many banks have underestimated their potential liability and are looking at sometimes 4 times more than they have actually declared.

The issues caused by Bad Credit Mortgages affecting the US market are likely to spread and it is only a matter of time before we are experiencing the back lash.

Merrill Lynch’s wrote off £3.85bn in bad credit mortgage debts last week, and showed the exit door to chief executive Stan O’Neal on Tuesday.

The Exchange Commission is investigating how Merrill valued securities tied to mortgages and how it disclosed them to investors in an attempted to cover up the true size of the losses.

It has been suggested that Merrill sold mortgage papers to hedge funds, on the understanding it would buy them back later at a fixed price. This allowed the bank to remove debts temporarily from its balance sheet – a former Enron tactic.

Leading New York securities lawyer Jacob Zamansky said: ‘If it turns out that Merrill played games in valuing their portfolio, there will be lawsuits.’

Experts expect Merrill to write of at least another $4bn in the next quarter because of bad credit mortgage debts.