"Unexpected" rate rise unlikely to affect buoyant market locally

Thursday 23 December 2021

An experienced local mortgage broker is confident the local property market will remain strong despite inflationary pressures which last week led the Bank of England to increase interest rates for the first time in more than three years.

The Bank raised rates from 0.1% to 0.25% following the release of data which showed prices climbing at around 5% - faster than for 10 years.

Pierre Blampied, Managing Director of SPF Private Clients, said that in historic terms last week's Bank rise was very modest and that interest remain extremely low.

"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," said Mr Blampied.

"However, they made the decision to try and slow price rises which are at their highest for 10 years.

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

Savers may welcome news of a higher Bank rate, but financial experts warn there is no guarantee that it will lead to better returns on savings. Even if saving rates increase slightly, returns will still be well below the rate of inflation. 

The Bank forecasts that inflation could hit 6% next year. 

The Bank can raise interest rates to help control inflation. Inflation is now significantly above the Bank's target rate of 2%. Many experts were still caught off-guard by last week's rate rise as they expected the Bank to defer any increase following the emergence of the omicron variant of covid-19.

The Bank said that successive waves of covid-19 appear to have had less impact on economic growth than feared, although there is uncertainty around whether that will remain the case with another wave this winter.

The rise to 0.25% still leaves rates close to their historic low. However, it coincides with signs of falling consumer confidence. The Bank clearly believes it is better to nip the bud of inflation than to risk facing a crisis in inflation later.