What seems apparent is that regardless of the decision, Bank of England base rate now has two directions in which it could move.
According to Jan Vlieghe, one of the nine policymakers in the Bank’s Monetary Policy Committee, underlying weaknesses in the economy could result in base rate falling below the benchmark 0.5%, in order to provide additional monetary stimulus to the UK economy if it does not rebound after a “remain in” vote in the EU referendum.
Even if this doesn’t happen, then the current base rate looks set to remain fixed until well into 2020, according to financial markets.
At the start of the year, the prediction had been for the UK Base Rate to rise in December 2016, or January 2017. The US had just signalled their first rate rise for nine years and the UK wasn’t expected to be far behind. Fresh global economic gloom for 2016 and a repeatedly relaxed stance by the Bank of England however, now suggests that nothing much will happen to base rate for another three years, at least.
In the light of this, fixed rates currently available from mortgage lenders represent great value and are as low, as if not lower, than the tracker rates that used to offer the lowest cost of mortgage funding.
Fixed rates are governed by interest ‘’swap rates’’, the rates at which lenders borrow for fixed periods on the money markets, and these reflect future trends in the economy, to include expectations of when base rate is likely to move. The lower the swap rate, the less chance there is that base rate will rise soon, hence the reason why fixed rates are so low at present.
Once the dust has settled after the Brexit referendum, then it is possible that these fixed rates might just fall further, so confirming the wisdom of locking into a fixed rate when buying, borrowing or remortgaging.
In the local market the trend this year has been for borrowers to favour fixed rates, usually for three or five years. An 85% mortgage seems to have been the most popular, with 90% mortgages running a close second. Anyone fortunate enough to require no more than 60% borrowing will enjoy cutting edge options across the whole range of rates, from tracker to discount or fixed.
We have also seen an increase in enquiries, although less take up, on the 100% mortgage product, currently available for borrowers who have a property-owning blood relative able to provide the essential additional guarantee that is required.
The recently released House Price Index (HPI) figures suggest that there has been a slight decrease in Jersey property values for one and two bedroom flats and smaller houses. This might seem strange as this is the area where the highest demand is to be found – a demand that has been created by First Time Buyers who tell us that there is insufficient supply of new property coming on to the market at this level.
The statistics are just that – providing an indication of trends, although sometimes moving away from the reality of the situation.
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