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Interest rate rise next year?

Interest rate rise next year?

Thursday 23 October 2014

Interest rate rise next year?


Interest rates could be set to stay at their historic lowpoint until next year, according to the latest information from the Bank of England, as one local expert said there were tentative signs of recovery in house prices.

Minutes of the monetary policy committee showed that there was a 7-2 vote against raising the rate from 0.5% during their October meeting.

Nigel Pascoe, Director of Lending, Skipton International said: "In Jersey if you look at the last house price figures, it looks as if the market here is starting to tentatively recover.

"Prices have been ‘correcting’ themselves since the big rises in 2007 and 2008. The first quarter of this year saw the lowest level of average property price in Jersey for more than five years, whilst the second quarter figures showed a slight increase of 1%in the mix-adjusted average price of dwellings, and a 13% increase in turnover.

"At the end of last year we saw a record number of mortgage applications coming into Skipton International and this year our mortgage book in Jersey overtook Guernsey’s where we have been the leading lender for the past four years. While it is inevitable interest rates will have to rise, the expected gradual increase hinted at by Bank of England Governor, Mark Carney, should ensure that a fragile recovery isn’t de-railed."

But George Buckley, Deutsche Bank’s Chief UK Economist who was actually in Jersey last week to address a conference said that even small rises could have a big effect on mortgage repayments.

He said: “We have put back our view of the first tightening in policy from the Bank of England until the first quarter of next year - and even then, the risks seem heavily skewed towards further delay thanks to weak domestic inflationary pressures, more worrisome developments in European economies and geopolitical risks.

"The Bank is unlikely to raise rates quickly when eventually they begin to tighten on account of households being highly leveraged. After all, people may be more sensitive to higher rates now - particularly those thinking about buying housing at high current valuations and low interest rates - it doesn't take as much (in terms of percentage point increases) to double repayments as it did in the past.”

The Bank of England minutes were released yesterday, and prompted the pound to drop half a cent against the dollar.

The rate has been at the lowpoint of 0.5% since March 2009.

Two members of the committee had voted for an increase to 0.75% - for both members, it was the third month in a row that they had pushed for an increase.

Analysts at UBS and Hargreaves Lansdown said that they expected interest rates to stay as they are until midway through next year.

Tristan Hanson, head of asset allocation at Ashburton Investments, said: “We expect US and UK rate increases next year, but if economic conditions turn out to be worse than anticipated then tightening cycles may be delayed.”

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