Interest rates have been an important topic in recent weeks as various institutions discuss what the future holds for them. The Bank of England Base Rate had stood at 4.75% for some months, but was reviewed down to 4.50% on 6th of February

THE FUTURE OF BASE RATE

In the lead up to this date, commentators in the UK, the EU and the United States voiced their own opinions with projections moving between an increase in the rate,  to four, even six reductions this year. Even the Governor of the Bank of England said that he expected four cuts if the economy was to benefit from easing inflation.

What could cause base rate to be increased or to stay the same? This of course is the leading question that nobody can answer, although the warning bells will ring if UK inflation starts to increase again, if Donald Trump introduces sanctions against the UK, or if global conflict escalates to the extent that supply lines are compromised – the list is worryingly endless!

MORTGAGE MARKET REVIEW

In 2010 UK Regulators introduced the Mortgage Market Review, which significantly restricted a mortgage providers ability to lend to anybody in need of a mortgage.

This meant that borrowers became restricted to a max of 4.5 times income multiple, with lenders also being required to carry out affordability tests to ensure that borrowers could deal with any increases in interest rates.

Initially this caused a huge outcry in the UK – less so in Jersey as the offshore counterparts of the UK banks decided to opt for a more generous 6 x multiple on income, subject to the usual caveats of affordability, which frequently reduces the multiple to around 5 times, sometimes less.

If these restrictions on both sides of the channel had not been introduced, then tens of thousands of borrowers would have lost their homes when interest rates started to rise a few years later.

Now, in a surprising announcement, the Regulators and the Bank of England have been asked to consider a review of the original criteria to support the Labour Government’s desire to increase growth in the housing sector which in turn will then contribute towards an upturn in the economy.

If this review is introduced, the implications are worrying, as an increased supply of mortgage funding, possibly at a lower rate of interest will result in house prices starting to rise as demand increases.

WILL JERSEY LENDERS FOLLOW?

Should this concept be adapted by Jersey mortgage providers, then the same impact will be felt by the local housing market, as demand will soon reduce the current supply of property to a level where prices will start to rise again.

This suggests that 2025 will be the year to buy before the impact of these possible changes.

 

THE JERSEY PROPERTY MARKET

Looking at the availability of property on the market in the first week of February, places.je records a total of 1636 apartments and houses for sale, a slightly lower number than the 1750 that we recorded towards the end of last year.

There was a noticeable increase in activity in the last months of 2024 continuing through to the start of this year. These figures are encouraging as it is evident that motivated buyers with realistic deposits and a provision for fees and stamp duty are continuing to negotiate realistic price reductions in all sectors of the market.

These are the new breed of home buyers, who have acknowledged, sometimes painfully, that the only way they will be able to afford a home is to make big sacrifices in their spending habits. These buyers have also accepted that the days of low interest rates, sometimes below 1% are not going to return in a hurry - if ever – the generation before them was very lucky to be able to enjoy ultra-low-cost mortgage rates as well as being able to go on expensive holidays and to buy a new car when they wanted.

First Time Buyers have not been forgotten as the Andium schemes which provide a generous deposit have helped to give a number of people the chance of becoming homeowners. The scheme is not cheap from a taxpayer’s point of view, as the £10m of funding that has been made available is virtually committed and it may well be difficult to continue with the project unless substantial funds are made available by the Government.

First Time Buyers will be encouraged by the fact that there are 106 apartments for sale, in the range up to £300,000, some even with a parking space. In the range £300,000 to £400,000, there are 216 apartments, some with two bedrooms and many with a parking space.

Family homes are well served with 340 apartments and flats in the range £500,000 to £700,000.

In the range £1m to 1.75m there is a choice of 244 houses and smart apartments, whilst there are 177 properties advertised at in excess of £2m.

A SUMMARY OF BEST MORTGAGE RATES

Some interest rates for February have moved up slightly and in fact are a lot closer to the best on offer in the UK, a situation which doesn’t happen very often.

In the current climate it is very difficult to recommend the most suitable mortgage product to anybody planning to buy, although on balance it would be prudent to lock into a fixed rate for no longer than two years as this will offer greater flexibility when that rate comes up for review in 2027, which could coincide with borrowers being able to access lower rates of interest, should they become available.