This is a guest blog by Melanie Bien, director of independent mortgage broker Savills Private Finance. The opinions expressed are her own:

The Bank of England’s decision to cut rates by 1.5 percentage points to 3 per cent - the lowest level in 54 years - is a huge surprise and everyone was caught on the hop by this drastic reduction.

While on one level it is welcome news, particularly for those on base-rate trackers who will feel the full benefit straightaway, it is worrying on another: how bad have things got to necessitate this dramatic reduction?

The next inflation report from the Bank of England will be interesting reading. The reduction will not be an overnight solution to the problems in the mortgage market. But it will start to have a positive effect on the interbank rate - the rate banks pay to borrow money.

These rates have been much higher than base rate: three-month Libor is around 5.7 per cent, for example, explaining why new mortgage rates have been slow to fall. It is unlikely that lenders will reduce their standard variable rates (SVRs) by the full amount but with such a big rate reduction there will be pressure on them to pass on at least some of it, particularly those who passed on nothing after October’s half-point cut.

Those coming up to remortgage will be in for a shock if they think new rates will be much cheaper. A number of lenders - Lloyds TSB, Northern Rock and Woolwich - have pulled their trackers and are set to launch more expensive replacements. Abbey has already priced its trackers 50 basis points higher in anticipation of this reduction in base rate.

Lenders who have cheap trackers are likely to be flooded with applications, which will affect service levels. One way of controlling this is by raising rates and lenders are adopting a herd mentality, copying each other so no-one is left exposed with market-leading rates. Fixed-rate mortgages have started edging down and will continue to do so.

But while rates are falling on some products, criteria are tight and this will take some time to improve. The best mortgage rates are still available to those able to put down at least a 25 per cent deposit or who have this level of equity in their homes. First-time buyers without financial assistance from their parents will continue to struggle to get on the housing ladder.

Praise for the Bank of England’s huge cut in interest rates to 3 from 4.5 percent has been widespread.

Economists say it was a bold and aggressive move and the government will now be looking for banks to pass on the reductions in full.

But was it enough? Some forecasters are looking for even more and suggest two or even zero percent could be on the way next year.

What is your opinion of the Bank’s decision?

It’s every houseowner’s worst nightmare - and it’s official now: more than a million households could fall into negative equity if the housing slump continues, the Bank of England said today.

Growing numbers of home owners could be forced to sell their properties at a loss, as the property downturn gathers pace and vendors run out of options.

The scope of the negative equity nightmare could be massive. The BoE said that a 15 percent drop in prices from their October 2007 peak would leave one in 10 homeowners with outstanding mortgage debt worth more than the value of their home. Earlier this week the Centre for Economics and Business research predicted  that the average cost of a UK home will fall up to 40,000 pounds by the end of 2009.

First-time buyers are among those hardest hit and buy-to-let landlords may fall behind on mortgage payments or may be forced to sell at a loss as lending dries up.

And if that’s not gloomy enough - two further sets of figures provided more bleak news for the housing market on Tuesday.

The Financial Services Authority said the number of home repossessions in the second quarter rose to 11,054 from 9,172 in the previous three months. And according to the Land Registry, the average price of a house in September was 168,814 pounds, down another 2.2 percent on the month, a far cry from around  200,000 pounds seen at the peak last summer.

How have you been affected by the downturn in the housing market? Have you even been affected by negative equity, either now or in the past?

Forget everything you’ve heard about the looming property crash.

In the midst of dire warnings about collapsing house prices comes a lone voice offering a crumb of comfort for hard-pressed homeowners.

A report by the National Housing Federation says that far from falling off a cliff, house prices could actually rise by a quarter by 2013.

It says demand for homes is rising because people are living longer, delaying getting married and are more likely to divorce.

Nearly 1.7 million people are on waiting lists for public housing and thousands of first-time buyers are saving up to buy a home, it says.

“As soon as the economic outlook improves house prices will resume their previous upward trajectory,” said the federation’s Chief Executive David Orr.

The Federation also says the supply of new homes still lags behind demand.

Not everyone agrees, however.

A report by Deloitte this week forecast that house prices will fall by a third and that the slump will last until 2010.

Inflation, shrinking incomes and the economic downturn will all take their toll, it said.

Where do you think the market is heading? Do you expect the price of your house to rise or fall in the next few years?

Borrowers might be under the cosh, but savers have never had it so good. Historically, when the Bank of England (BoE) base rate changes, mortgage and savings rates follow suit. But amidst the current credit crunch, those with spare cash and prepared to move their money around can take advantage of banks’ and building societies’ eagerness to attract retail funds.

The last time the base rate stood at its current level of 5 percent was 17 months ago — in November 2006. And there are huge differences between then and now in fixed savings rates. The top six-month fixed rate bond is now paying 1.59 percent more interest on a 10,000 pound investment, at 6.86 percent. Kaupthing Edge and Icesave top the best buy tables with that rate, Heritable Bank is close behind with its new offering of 6.80 per cent as of this weekend, and Alliance & Leicester this week issued a fixed rate bond with a competitive 6.83 percent. “With many people thinking  that the base rate is likely to fall further this year some of the fixed rate products available now look outstanding value,” says David Black, principal consultant for banking at financial research company Defaqto.

There is no saying, however, how long the good times will roll for savers, and those looking to take advantage of attractive rates should move quickly. Remember, too, that the maximum protection afforded under the Financial Services Compensation Scheme is 35,000 pounds per financial institution; those with more than that in cash reserves should split their pot between different providers.

In contrast, the credit crunch is continuing to hit borrowers and investors: overall, even those with substantial savings might wind up no better, or worse, off. The FTSE 100 index has dropped 9.32 percent over the past six months, according to stocks and shares Web site ADVFN.com. Its data highlights the extent of the volatility that has been hampering markets. Having opened the year at 6450.9, Britain’s blue chip index dropped to its lowest level of 5338.7 points on January 22 — a long way from its six month intraday peak of 6751.7 achieved on October 15. This equates to a 1413-point move — a 21 percent drop from the index’s high to its low. “There are no two ways about it; we are in a bear market,” says chief executive Clem Chambers. “In markets such as these where the underlying trend is down, strong rallies are commonplace, but the day-to-day weakness overcomes moments of strength overall. Breaking back up through psychological barriers such as 6000, unfortunately, does not mean the good times are back. This is bad news for investors but can be profitable for traders.”

And, in mortgage markets the London Inter Bank Offered Rate (Libor) — the most famous barometer for short-term interest rates in the world — continues to loiter stubbornly high in relation to the base rate. Libor, the rate at which lenders borrow money, determines mortgage pricing for consumers, and is now the “hoodie of the finance world” — symbolic of a fallen system, where banks lack the confidence to step out of their houses to trade with each other — according to independent mortgage broker Charcol.

The BoE’s discussions on the mortgage market will not necessarily improve the situation, according to Andrew Townsley, chief executive of Sheffield Mutual and president of the Association of Friendly Societies. “Even if market conditions improve, mortgage lenders are likely to continue to impose relatively high lending rates on mortgage products and the situation won’t necessarily improve for borrowers,” he warns. “Banks will be tempted to improve profit margins, and although lending rates may come back a little we won’t see them revert to the attractive levels borrowers have experienced over the last few years, for some time yet.”

Savings rates could soon take a turn for the worse, too: ”We can expect to see a drop in attractive saving rates as the situation eases, meaning the consumer remains yet again at a disadvantage,” says Townsley.

Not time to crack open the bubbly yet, then.

Thursday’s cut in interest rates should come as some relief to hard-pressed borrowers, under the cosh from the credit squeeze which has seen lenders raise their rates, cut maximum loan-to-values and tighten lending criteria. Those on tracker rates – that mirror movements in the base rate – will, of course, see a reduction in the amount of interest they pay. Others, though, are at the mercy of their lenders.

A string of high-street names said they’d reduce their standard variable rates following the quarter-point Bank of England (BoE) base rate reduction to 5 percent. That, however, will only partially offset hikes imposed by many of these very lenders in recent times and many commentators argue that the Monetary Policy Committee has failed to go far enough to ease the pain in the mortgage market — and should have acted faster by cutting rates by 0.5 percent.

Nationwide Building Society is raising rates by as much as 0.32 percent on some products and several others — Alliance & Leicester, Chelsea Building Society, Standard Life Bank and Leeds Building Society included — have hiked rates on some of their mortgage products by up to 0.26 percent.

The real problem lies in the gap between the base rate and Libor, the interbank lending rate, which dictates the deals offered to mortgage borrowers: it has ballooned in recent months, despite two cuts in the BoE base — and only a substantial cut in interest rates would have any real impact on narrowing the gap, according to online mortgage company mform.co.uk.

“The crucial factor is the gap between Libor and the base rate; they are massively out of sync and that is dictating terms in the mortgage market,” says chief executive Eamonn Rice. “The 0.25 percent cut will have no effect. The Bank of England has failed to grasp the opportunity to help homeowners and potential borrowers.”

They’re still up there in the list of conversation topics at dinner parties, but house prices nowadays are more likely to have the guests huddling together for warmth than bragging about the value of their properties.

As the lending windows slam shut and the market contracts, prices according to the biggest lender, Halifax, are falling at their steepest rate since the recession of the early 1990s.

Do you think this is a welcome pricking of a property bubble that has gone on far too long and that — with features like no-deposit loans of five times income and above — could have been seen coming years ago?

Or is it likely to be merely a correction, a wake-up call to banks that have strayed from prudent lending principles, with the housing market still basically underpinned by the ever-growing demand for housing?

Tell us your views — and if you want to read more, visit our special report on the housing market.