Rate cut `may damage mortgage market`

The recent cut in the UK`s base rate of interest may have a detrimental effect on the UK`s mortgage market, it has been claimed.

According to the Building Societies Association (BSA), lower interest rates reduce the incentive for people to save and this subsequently limits the flow of funds into the mortgage market.

Director-general of the organisation Adrian Coles added: "It will also harm the aspirations of the many people who are finding it difficult to get a mortgage, particularly first-time buyers with relatively small deposits."

He added that while the decision to lower rates will be of benefit to some borrowers on tracker or variable-rate mortgages, the reduction in their repayments will not outweigh the "negative impact" that the fall in mortgage funding will have on the industry as a whole.

Currently, the base rate stands at 0.5 per cent, following the decision made by the Bank of England last week to reduce it by 50 basis points.