For the 13th consecutive time, The Bank of England has increased Base Rate to 5%, with economists now suggesting that further rises to possibly 6.5% will be required in a desperate attempt to reduce UK inflation.

It is forecast that these further increases could raise rates by 0.5% in August and September, slowing to 0.25% in November and December.

These are still only forecasts, which suggest the worst scenario, although with the UK economy struggling to lower inflation and raise productivity, they should not be ignored.

STRESSED RATE

After the Financial Crisis in 2008 and 2009, all mortgage providers introduced a second level of underwriting before agreeing to lend. This involved applicants needing to be able to still afford their mortgage at a much higher ‘’stressed rate’’, and it is this policy which is currently responsible for so few mortgage applications being approved at the level required to match the prevailing high prices in the local housing market.

JERSEY HOUSING MARKET

Jersey has usually enjoyed a buoyant and busy housing market outside of the crisis years and post Covid this resulted in a significant increase in property values, which benefited many vendors. Unfortunately, this also created huge problems for first time buyers and those who wished to trade up, due to the increased size of deposit required, higher stamp duty and also legal fees.

HOUSE PRICES STARTING TO FALL

Since the beginning of the year, there has been a downward shift in asking prices, although mortgage rates continue to increase at a faster pace than prices are coming down.

The reality is that many sellers have yet to accept that they may not be able to sell for anywhere near the prices that were being achieved up to the end of last year, and as a consequence we appear to be reaching a total impasse in the market.

The latest surge in interest rates, and the promise of further hikes, means that most borrowers will find that their borrowing power has dropped by a third, which translates into the need for the market to fall by in excess of 30% - it is feared that this may have to increase once rates are put up again later this year.

While we are now hearing of reductions on some transactions of up to 20%, this may still not be enough to kick start the housing market, as vendors are still coming to terms with the fact that all property has reduced in value and buyers may still have unrealistic expectations, based upon what they could ‘afford’ to buy when commencing their enquiries last year.

EXISTING BORROWERS

The much larger problem which has yet to surface is the plight of many existing borrowers whose fixed rates come up for review later this year or into 2024. UK government intervention with all onshore lenders, could result in borrowers being able to access payment holidays, convert their mortgage from repayment to interest only, an extension of their mortgage term and other variations on this theme, to include 12 months’ delay in taking action to repossess.

Whilst none of these options are desirable, it is hoped that Jersey’s lenders will be able to follow suit, as this will help reduce the stress from which many borrowers could otherwise suffer.

These concessions should only be used as the last resort, as they will result in an increase to the overall debt during the term of the mortgage, which could lead to affordability problems further down the line.

If a borrower were to invoke one of these options, then it is possible that their credit score could be seriously compromised for years to come, despite assurances that this should not happen.

BEST RATES THIS MONTH

These show an increase in tracker rates which is to be expected, whilst many lenders have also increased their fixed rates, there are still some competitive rates available, subject to lenders criteria. In the current climate, 5-year fixed rates look attractive, whilst the few 10-year fixed rates could be seriously worth thinking about.

 

• 2 year tracker     60% LTV 5.38% (July)         prev. 4.49% (January)     
• 2 year tracker     90% LTV 6.19% (July)        prev. 5.04% (January)      
• 5 year Fixed     60% LTV 5.25% (July)        prev. 5.29% (January)     
• 5 year Fixed      90% LTV 5.70% (July)        prev. 5.49% (January)       
• 10 year Fixed    60% LTV 5.30% (July)        prev. 5.40% (January)   
• 10 year Fixed    90% LTV 5.75% (July)        prev. 5.80% (January)   

 

Rates correct at 07 July 2023

For over 33 years, The Mortgage Shop has helped many thousands of Islanders to purchase 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. Do give them a call on 789830 to ensure that you obtain the best mortgage at the most competitive interest rates.