Borrowers ‘should not be worried over rates rise’

The Bank of England last week increased rates from 0.1% to 0.25% in response to the official UK inflation rate hitting 5.1% – surprising some who thought policy-makers might wait to see what impact the new Covid variant, Omicron, might have on the economy.

Pierre Blampied, managing director at SPF Private Clients, said it was the first interest rate rise in three years and that the overall picture still looked good, while one mortgage provider said it would review its product offering once the dust from the Bank of England move had settled.

‘We’ve known that an increase to the base rate has been “bubbling under” for some time, but the decision was still largely unexpected as it was anticipated that the Bank of England might hold off due to the uncertainty over Omicron’s impact on the economy. However, they made the decision to try and slow price rises which are at their highest for 10 years,’ he said.

‘This is the first increase since August 2018 and what it means in real terms is that anyone on tracker or variable rate mortgages will see a slight increase in their monthly repayments as the mortgage rate will move in line with the base rate.’

But Mr Blampied was upbeat about the picture overall.

‘It will be interesting to see what impact the increase has on fixed rates, but pleasingly these remain at very low levels,’ he said.

‘At 95% loan-to-value borrowing we would expect little change, and don’t forget the aim of the base rate increase is to tackle inflation, slow price rises and ensure that we all have more money in our pockets. The local property market is buoyant, demand is high and I don’t see this as having a negative impact.’

Jim Coupe, managing director at Guernsey-headquartered bank and mortgage provider Skipton International, said the bank would be keeping a close eye on the potential for changes in the new year.

‘Once the dust from this Bank of England rise has settled, we will review our own product offering in the new year and react accordingly.’

Kevin Boscher, chief investment officer at Ravenscroft Group, said he would expect inflation in Guernsey to be significantly higher when it was next published and in line with similar trends in the UK and Jersey.

‘Much of the spike in inflation is due to Covid-related disruption to both supply of and demand for a range of goods and services such as semi-conductor chips, commodities, building materials etc. Energy costs have also spiked and are a big contributor to higher prices, as are labour shortages, higher shipping costs and a weak sterling relative to the dollar,’ he said.

‘There will be some differences in the inflation numbers for Guernsey relative to the UK and Jersey partly due to the composition of the respective baskets, methods of data collection, taxes and reporting dates. For example, I think food – we import more – housing, energy and transport will all likely have a bigger impact locally. Government duties on alcohol, cigarettes and fuel will also be a factor. Generally, the cost of living is higher in the Channel Islands than the UK, so this may also be relevant.’