The Year So Far

At the beginning of the year, we were told that the country was heading into recession, that Bank of England Base Rate was close to peaking at 4% and that inflation had fallen and was likely to continue to fall.

Now entering the second quarter, we are told that whilst the risk of recession was receding, a decision to raise the Base Rate on 23rd March to 4.25% became virtually inevitable to help curb an unexpected rise in inflation that has increased to its highest level for 40 years. There had been speculation in the weeks before that the Bank might pause any further increases in the light of the potential world banking crisis, which has been tucked under the carpet for the time being.

These confusing messages can do nothing other than undermine the confidence of the local property market, although it is important to look positively towards the latter part of this year, when inflation is expected to fall, followed by a subsequent reduction in Base Rate.

Lending Criteria

Mortgage providers have changed the criteria that they use to decide how much they will lend to people seeking a mortgage, employing high stress tests to their applications, and this is likely to continue until Base Rate starts to fall again. Following the most recent rate rise, one leading lender, offering a five-year fixed rate of 6.14%, announced that the stress rate they were now going to use had risen to 10.39%. For a mortgage application to be approved, potential purchasers need to be able to afford their mortgage at this higher rate, and it is this which has caused the slowdown in the property market.

We are now faced with a situation where purchasers quite simply cannot secure the necessary lending to afford to buy at current asking prices, which means that vendors, may have to reduce their expectations if they want to secure a sale.

Asking Prices vs Selling Prices

There are no statistics in Jersey that give any indication of by how much house prices should fall, although in the UK typical house prices are currently reported as being marketed 23% higher than the average selling price, which suggest that sellers are setting their sights far too high.

The Jersey Statistical Unit produces house price figures quarterly in arrears, and these should be announced sometime in May, when a much clearer picture should emerge.

In the meantime, sellers who advertise their property at too high a price could find that their home lingers on the market for months. The unfortunate by product of this is that the longer it remains, the less interest it will attract, with potential purchasers assuming that the months of marketing is a sign that there must be something wrong with the property.

Until vendors finally come to terms with the current situation, the market will continue to remain in trouble. The fact that an identical house next door sold last year for a higher figure than your estate agent is now recommending, might be a bitter pill to have to swallow, although if you want to sell this year, then you may have to review your expectations.

Current Interest Rates

The best fixed interest rates that were available at the beginning of April have been reduced since the start of the year, which is encouraging, as lenders take into account market visibility and future trends. If Base Rate increases again in the next few months, then the certainty is that tracker rates will rise, although fixed rates, in particular those that are available for five years, might be only marginally affected.

BEST RATES

• 2 year tracker     60% LTV 5.19% (April)         prev. 4.49% (January)      
• 2 year tracker     90% LTV 5.79% (April)        prev. 5.04% (January)      
• 5 year Fixed     60% LTV 4.84% (April)        prev. 5.29% (January)     
• 5 year Fixed      90% LTV 5.29% (April)        prev. 5.49% (January)       

Rates correct at 05/04/23

HERE TO HELP

The Mortgage Shop was established 33 years ago and has helped many thousands of islanders to acquire their first home, to trade up to their forever home, to acquire an investment property or to provide the short-term funding needed by so many people, when rebuilding or extending their homes. Should you require our assistance, please get in touch.

Henley Financial, our sister company, specialises in financial services and can arrange the all-important life assurance to run alongside your mortgage.