Thanks for pointing out the differences. Actually, adjustable rate mortgages are affected by the interest rate cut in the same way they are in the UK. However, it’s the fixed 30 year, which is the bread and butter that is not affected. Some ARM’s are tied to the prime rate and hence these would be affected.

I don’t know that too many people in the US are interpreting the FOMC cuts in a positive light. I know Wall Street is loving it, however, its like too much candy after a while. You’ve got to eat something substantial otherwise you’ll only get a stomach ache. I think most analysts understand this and are not liking it too much. I’ve read a few market analysis bloggers complain that something is fishy and they don’t like the smell of it.

Rates are tied to mid-long term bonds, since most lenders sell to the secondary market. But if that market is pricing at 8%, some bank is going to say “I can borrow at 2% & lend as much as I want at 7.5% - that’s a heck of a margin.” And they’ll steal as much market share as they want. Simple supply & demand plays a pretty big factor, too.

PS - I posted a couple of days ago about economist John Mauldin’s opinion; today’s rate cut might indicate a bumpy ride ahead for banks and mortgage companies..

In the UK, consumer mortgage rates have historically been MUCH more closely tied to Bank of England MPC rates (our equivalent of the FOMC), because we have two systemic differences:

1: The vast majority of UK home-owners and property investors have short-term mortgage deals (either fixed for 2-3 years or discounted relative to the UK normal rates for 2-3 years, reverting to “normal rates” at the end of the fixed period.)

2: “Normal rates” in the UK are NOT based around selling mortgage backed paper. The securitisation industry in the UK is a tiny fraction of the mortgage industry - the majority of mortgage lenders are putting up their own capital rather than securitising.

However, despite this, UK mortgage rates haven’t gone down since the last MPC cut… the UK analysis is a bit different.

The UK finance industry is interpreting things like last week’s FOMC cut (let alone today’s) NOT as the Fed acting decisively… but as the Fed panicking! That’s meant that lenders are being EVEN MORE cautious about who they lend to, and withdrawing mortgage products left right and centre. With fewer players able to provide a mortgage to any given customer, the customers are, obviously going to pay more since less competition -> worse pricing.

I wonder whether you’re seeing similar effects on your side of the Atlantic?