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December 2015

The central focus as always is the Bank of England’s base rate, which it is now claimed could remain at the all time low of 0.5% until late in 2016, so maintaining the longest period of constant low rates for nearly eight years. Even after the first rise, the market is pricing in only very slow increases, far slower in fact than has been previously suggested, and not expecting a return to 3% until 2025.

GREAT FOR BORROWERS, BUT A DISINCENTIVE TO SAVE

This unreal situation has been great for borrowers, but has resulted in house prices in the UK rising too quickly. It has also acted as a disincentive for the nation to save, the long term implications of which have yet to be fully assessed, but it will mean that the pension pots of millions will suffer as they reach retirement.

The money markets have a strong impact on the cost of the mortgage funds that are lent out by the banks and this latest news could well result in further reductions in fixed rate mortgages which are already outstanding value when compared to the much higher rates that were available in the pre recession period.

BEST ADVICE

As mortgage brokers we are committed to giving our clients best advice and this will always include a comparison of the various interest rate options that will be available, taking into consideration the needs and expectations of that individual person.

Most of the time, this advice has resulted in our clients opting for a fixed rate of interest , usually over a five year term and aimed at protecting the borrower from any nasty surprises if base rate were to increase.  We have had to review that advice in recent months as base rate trackers have represented great value, especially when there is a deposit of at least 15%.

FULL CIRCLE

More recently however, we have found the need to turn full circle again as some five year fixed rates are now lower than the trackers that are currently on offer – how much longer can this situation continue?  The answer is perhaps that it will do so for a number of months yet and we might see fixed rates fall even lower, especially for those with a five year term.

FIRST TIME BUYERS ARE THE CATALYST

Whilst sales of property, from bedsits to clifftop mansions, are essential to an active property market, the catalyst to all this are the First Time Buyers, for without them, activity would be greatly reduced.

Missing from the scene since 2009, there has been a noticeable increase in First Time Buyer purchases during the past eighteen months despite the major challenge of finding a deposit and also having to make provision for legal fees and all of the other costs associated with a purchase and mortgage.

FIRST TIME BUYERS OPTIONS

100% mortgage options are available, although these have not been as popular as one might have expected, perhaps because they have to be linked to a guarantee from a Channel Island based property- owning blood relative. Before the recession, 95% mortgages were available without a guarantor, and now that prices seem to have stabilised in the Jersey market, there is a good case to be made for their reintroduction. A number of lenders have started to offer this type of mortgage in the UK, and it will be interesting to see if the local lenders follow suit in due course.

REDUCED MORTGAGE COSTS

When a mortgage is secured upon Jersey property, stamp duty or land transfer tax (LTT ) is paid by the borrower at 0.5% of the amount registered.  As a concession, First Time Buyers benefit from greatly reduced Stamp Duty / LTT up to a ceiling of £400,000.  In the Draft Budget proposals for 2016, and subject to approval by the States Assembly, this ceiling will be raised to £450,000.

Under the new proposal, anybody buying property up to a maximum purchase price of £450,000 will be entitled to a reduced rate of Stamp Duty / LTT on the mortgage debt registered.  On the first £350,000 of borrowing, no Stamp Duty / LTT will be charged, whilst on the next £100,000 of borrowing, the Stamp Duty / LTT will be payable at the reduced rate of 0.25%.

These measures will not have a huge impact on the First Time buyer market, although when combined with the much larger concessions that are available on the Stamp Duty / LTT that are available on purchase prices  up to a ceiling of £400,000, offer a significant saving  on the overall cost of buying and borrowing in Jersey.

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