December 2022

Interest rates have thankfully remained constant for the last month, following the Bank of England’s Base Rate increase to 3% at the beginning of November when all Jersey mortgage providers adjusted their rates upwards, to match the 0.75% increase, which impacted heavily on the local market, as buyers and borrowers came to terms with the much higher cost of borrowing.

BASE RATE FORECAST

Base Rate is forecast to rise further during the next twelve months or so, although opinions differ as to how far the Bank of England will have to go in an effort to curb galloping inflation. It is now suggested that the significant rate rises that were predicted as recently as last month, have since been adjusted to suggest it will remain below 4%.

LOOKING BACK

The last time that we saw Base Rate at the same level as today was in November 2008. But rather than it being increased to 3%, it was in fact following a fall from a previous high of 7.5% in November 1997, which was actually viewed as good value, given the decade preceding saw Base Rate standing at 14.88% in October 1989.

At that time, fixed rates didn’t exist, so borrowers had to endure their lender’s variable rates, which were the precursor of what is now the tracker rate. Thankfully, most borrowers do not find themselves in this situation now.

Despite such high costs of borrowing, the market was still very busy in 2008, with buyers acknowledging that they had to allocate a much higher proportion of their income towards their house purchase and were willing to sacrifice, amongst other things, expensive holidays, new cars and eating out.

RIDING THE STORM

Life has to move on however, and borrowers who have paused their house ownership plans or indeed parked the idea of refinancing, may now be persuaded to review their thinking as the financial woes of the UK are not going to disappear overnight. While we are a long way away from the sub 2% rates that we have seen in 2021 and even in early 2022, the availability of mortgages in the 4% - 5% range, or possibly even higher, has quite a high degree of probability for the next few years.

Nick Dodsley, chairman of the Jersey Estate Agents Association is positive about the current situation and confirms that whilst there has been a slowdown of enquiries compared to earlier in the year, there remains activity in the market and that properties are still going under offer, with the new year still likely to bring a seasonal revival of activity.

NOT ALL BAD NEWS

Whilst a lot has been said about the higher rates and repayments being faced by borrowers, this does need to be put into context, as not all borrowers are in the same position, with many still locked into fixed rate deals that will last for many more months, if not years. The specific pain will be felt by those who are about to be offered a new rate following the expiry of a current fixed rate deal, or those seeking a new mortgage to fund a property purchase.

TRACKER RATES

Mortgages are available in two main options, the first being a tracker, which will follow the Base Rate. Despite the rates being lower than those which are fixed, this product has not tended to be recommended by our advisers at The Mortgage Shop, due to the expected rate rises every time there is a Base Rate increase, with no cap to avoid them becoming unaffordable. However, with the news that rates might peak next year, it is possible that a tracker might be considered for a borrower, if they are prepared to take the gamble of riding with the market. Best tracker rates are currently between 3.94% and 4.54%.

FIXED RATES

Fixed rates are currently still available for periods of two, five and ten years. The two-year rates often don’t achieve the stability that most borrowers are looking for, whose principal choice tends to be a five-year rate, allowing the peace of mind their repayments will remain stable for that timeframe, with best options being in the range of 5.39% to 5.58%. Whilst ten-year rates can be found ranging from 5.15% to 5.65% and are generally only considered for borrowers who are financing their ‘forever home’.

Here are the current best rates, although these may have changed by the date of publication :

Tracker  2 years  60%   3.94%

Fixed      2 years  60%   5.79%

Fixed      2 years  90%   5.99%

Fixed      5 years  60%   5.39%

Fixed      5 years  90%   5.59%

Fixed     10 years 60%   5.15%

Fixed     10 years 90%   5.40%

Rates correct at 02/12/2022