If you follow the mortgage industry this is actually pretty big news:
-----The Bank of England cut its key interest rate by a quarter percentage point to 5.5%, its first rate reduction in two years, as credit conditions tighten.----
Many loan our tided to LIBOR (London Inter Bank Offer Rate) it is similar to Fed Funds but on a global perspective. Understand that mortgage lending is not as simple as it was 30+ years ago.
30+ years ago you borrowed from a local bank to fund the home purchase. That local bank also serviced your loan too. Problem with this scenario is that local banks were too heavily exposed to local market conditions. If the local employment fell and people lost jobs and were forced to move the banks were often stuck holding the property.
National banks had a little advantage because they could spread their risk, but the exposure for that one branch was still the same.
In the Early 1980's Mortgage Backed Securities were the solution. bundle a whole bunch of like mortgages from different parts of the country and sell the asset. This has revolutionized the mortgage industry. We are now on a global level because these securities are bought and sold by foreign investors.
This is a brief and simple explanation of the mortgage industry, but with LIBOR falling we should see a little more stability in the credit markets.
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