In anticipation of interest rates falling, the year started with great promise judging by the significant increase in mortgage enquiries when compared to the previous eighteen months.

Since May, delays by the Bank of England in reducing base rate have slowed the market, as purchasers temporarily shelve their plans to either buy or trade up. The strict lending criteria introduced by all local mortgage providers has also acted as a brake due to affordability calculations which have been in place since base rate was increased to its current level of 5.25%.

16 YEAR HIGH

The rate reached this level in August 2023 and has been held at a 16 year high in an endeavour to tackle soaring price pressures in the UK economy.

Market commentators generally feel that rates will fall, although it may take longer than had previously been hoped. June saw a mixed picture of UK lenders juggling with their fixed rate mortgages, with some nudging up whilst others trimmed their range. This rather confusing message to the borrowing public has created an air of uncertainty which will remain until the Bank of England takes positive action.

BASE RATE CUTS LATER THIS YEAR?

It is generally thought however that the first base rate cut will be announced in August or possibly September, although even now, any decisions will depend on what happens to inflation.

Should the Bank of England reduce base rate, then it is likely that this will be by 0.25%, possibly followed by a further cut by the end of this year, taking base rate down to 4.75%. This should then result in fixed mortgage rates, which are always lower than base rate, reducing to figures close to 4% for five-year options, which should make the cost of borrowing far more manageable.

MARKET CONFIDENCE

At this stage, the reductions are likely to boost the confidence of the market so that we should see an increase in activity again to follow the short-term boost that we witnessed at the beginning of the year. The longer that interest rates remain high, so people will stop looking back at the now historic lows when rates were 1% or 2% and will instead become resigned to the fact that house purchases will require a much larger financial commitment in the future.

LOWEST RATES

The lowest interest rates in the market will always be those that are offered on  a fixed period for five years if not longer. Whilst these rates look attractive now it must be remembered that they will lock a borrower into repaying a mortgage at what could become a very high rate of interest, if rates start to fall as predicted later this year.

A fixed rate period is honoured by both the lender and the borrower, and to break this contract, a borrower will normally have to pay a penalty of 1% for each year that remains on the fix. It is for this reason that many borrowers are currently favouring two-year fixed rates which are more expensive but offer greater flexibility.

A few borrowers will take the mortgage on the tracker rates that all lenders offer, although, whilst offering total freedom to move the borrowing at any time, as well as benefiting immediately from any reduction in base rate, these options are significantly more expensive than fixed rates, and are not for the faint hearted.

 

JERSEY HOUSE PRICES

House prices still have some way to fall, as many lenders are still unable to match the much higher levels of borrowing that many potential buyers seek. The island has already seen significant reductions in asking prices during the past two years and the trend will have to continue, probably well into next year.

 

A MONTH-BY-MONTH INCREASE IN PROPERTY BEING PLACED ON THE MARKET

A summary of the postings on places.je for this month shows a total of 1583 houses and apartments -- a figure that continues to increase each month. Of these, 430 are in the price range up to £500,000, whilst a further 327 can be found between £500,000 and £700,000.

The significant message that can be seen when analysing these figures is that prices in the lower bracket have fallen considerably and  are now becoming affordable so opening up the market to First Time Buyers  who form such an essential part of the property chain.                                                                                                                                                                                                                                                              BEST RATES

Best rates for July have remained the same which shows that Jersey mortgage providers are delaying taking any action until there is more positive news. This does not match activity in the UK, where their high street counterparts have been reducing interest rates across the whole range.

 

Bank of England Base Rate 5.25%
2-year Tracker rate 60% LTV	July 2024 5.75%	June 2024 5.75%	January 2024 4.44%
2-year Fixed rate 60% LTV	July 2024 5.34%	June 2024 5.34%	January 2024 5.79%
2-year Fixed rate 90% LTV	July 2024 5.64%	June 2024 5.64%	January 2024 5.49%
5-year Fixed rate 60% LTV	July 2024 4.84%	June 2024 4.84%	January 2024 5.29%
5-year Fixed rate 90% LTV	July 2024 5.14%	June 2024 5.14%	January 2024 5.49%

 

Rates correct at 11/07/24