Press Office

COMMENT ON RATES AND THE IMPACT THEY WILL HAVE ON FINANCES

As we approach the end of the year and look forward to 2005, the issue dominating everyone's mind is whether UK Base Rates will rise again and what impact this will have on our everyday lives. Rates have risen progressively from their historic lows of 2003 , when they were cut to 3.5% (the lowest since 1954), starting 2004 at 3.75% and then rising four times, each time by 0.25% (in February, May, June and August) to reach their current level of 4.75%. Nigel Pascoe, Manager – Lending of Skipton Guernsey Limited (SGL) comments, “The driver for these rises has been concerns over the inflationary impact of both the continued rise in house prices and consumer borrowing. The Bank of England left UK Base Rates unchanged at their September meeting, which was what we expected. Since the series of rate rises this summer, there is now increasing evidence that some of the inflationary pressures in the UK economy have begun to cool. In particular, mortgage lenders are also beginning to report a slowing of new applications for home loans, which was one of the key indicators the Bank had focussed upon."

In terms of impact, certainly earlier this year the Guernsey housing market reflected the general UK market with Skipton Guernsey reporting a strong demand for its mortgages. Nigel Pascoe noted, “There was definite interest in buy to let properties, particularly in the £500,000 price range and upwards, where yields match and sometimes exceed those in London , for example.”

As interest rates have risen and house prices have ‘softened' slightly, the Guernsey market is probably still performing slightly above the general UK market but activity is definitely not as brisk. Inevitably, when UK Base rates and Guernsey mortgage rates are rising, clients often start to look at the reassurance of a fixed rate mortgage. This can be good idea, but it is important to understand an individual client's precise financial circumstances and their appetite for risk. Nigel Pascoe commented, “With our personalised service, this is an area where we can really help our clients. We take the time to go through a client's precise personal financial records and to understand how they feel about the prospect of rising or falling rates. If budgets are tight we often find that clients prefer a fixed rate loan, as it brings certainty to the running of household finances.”

This certainty of budgeting with regard to monthly mortgage costs is one of the biggest strengths of a fixed rate loan. However, it is also true to say that once mortgage rates are at or near their peak, there are often cheaper variable rate products available.

As to what the New Year will bring, Nigel Pascoe continues, “Looking ahead to Christmas and 2005, we are only expecting a slight increase in both UK Base Rates and mortgage costs over the next few months, which itself will be dependant upon the rapidly changing UK economic data. If, as expected, the cooling trend continues, there may not be any further interest rate rises this year. With UK Base Rates possibly approaching their peak, Guernsey house buyers may be able to breathe a sigh of relief, as it is now looking more and more likely that mortgage costs will not continue to rise steeply in 2005.”

Comment provided to Guernsey Press for a Personal Finance feature.

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Editor's Notes

Skipton Guernsey Limited (SGL) is a wholly owned subsidiary of Skipton Building Society. Deposits made with SGL are not covered by the Financial Services Compensation Scheme established under the Financial Services and Markets Act 2000. Skipton Building Society, established since 1853, has given an undertaking agreeing to discharge the liabilities of SGL in so far as SGL is unable to discharge them out of its own assets and whilst SGL remains a subsidiary of Skipton Building Society. SGL is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 1994, as amended and conducts business only in Guernsey; it is not authorised to accept deposits elsewhere. Copies of the latest audited accounts are available on request.