Over the last few weeks we have seen a concerted effort by the vast majority of central banks around the world to breathe some life back into the credit market, the internal market which provides vital funding for business. While there have been rate reductions in both the US and the UK, many UK mortgage holders have complained that their mortgage rates have not moved in line with base rates. How can this happen?

While on the surface a reduction in UK base rates would normally be the leader for a fall in UK mortgage rates, but these are not normal times in which the finance industry is operating. Behind the scenes the credit market is still in disarray with a vast number of traditional lenders not present, or at the very least not present to the same levels as prior to the credit crunch. This means that internal lending rates are still higher than base rates which is why many mortgage providers have yet to pass on any major reductions to their customers.

The ongoing reduction in worldwide interest rates will kick in at some stage and we will see lending rates return to more traditional level, but as ever with interest rate movements there can often be a substantial delay between the rates moving and the effect it has on the world of business. While there is no doubt that even the indication that rates will fall further in the short term will be well received by the markets, we are in a fairly unique position which many people may not have experienced before.

So is the worst over?

Too many people called the end of the credit crunch too early and it came back to bite them, so anyone who predicts the end of the current situation can only be guessing. The gradual reduction in interest rates on a worldwide basis is a major help, as is the indication that the central banks are willing to be proactive rather than reactive, but it will take some time yet to return to a more traditional market arena.