AN ADJUSTMENT IN THE HOUSING MARKET

There have been numerous predictions that sales and lending activity in the Jersey Housing market will reduce during the course of this year and this appears to be supported by estate agents as well as all of the mortgage providers.

In the UK, it is suggested that house prices will have to fall by at least 20% to kick start a market, which is likely to fall to the lowest levels since 2008. Running parallel to this is the significant change in attitude towards risk adopted by those banks who offer mortgages, which has resulted in mortgage interest rates more than doubling in just a few months.

GREATER COMPETITION

It is uncertain if this trend will be felt by the Jersey market, and the Jersey Estate Agents Association has recently commented: ‘’There are more properties on the market, and vendors are starting to realise that as there is a lot of competition, they need to be more mindful on price if they are going to attract viewings and buyers. Vendors must be realistic about their expectations if they want to move. Transactions are still happening and offers being made’’.

The Bank of England, with its eye forever focused on inflation, has steadily increased Base Rate during the whole of last year so that it now stands at 4%. This knee jerked the banks into increasing their mortgage rates to a higher level than was perhaps necessary, with many also introducing a more stringent stress test to their mortgage applications, resulting in many potential borrowers effectively prevented from taking on the mortgage, due to them failing to qualify against the new criteria.

WHY DOES THE MARKET HAVE TO ADJUST?

Put simply, when rates are low, mortgages are cheap and house prices rise. When rates go up, debt becomes more expensive, demand reduces, and the market is forced to adjust. If this basic fact is sometimes forgotten, it's because we have all been living in the former state – a low interest rate environment – for over a generation and a half.

Sadly that era appears to be over, as soaring inflation has forced the Bank of England to increase Base Rate on ten occasions over the past fifteen months, with some economists predicting that one more rise is likely to follow in late March.

WINNERS AND LOSERS

The good news is that a fall in house prices, whilst being painful for vendors, will not have much of an impact on home movers, as they will in turn, benefit from reduced asking prices for the property that they wish to trade up to. Whilst First Time Buyers will also be well placed, as they will gain all of the benefit of the reductions, that we will inevitably witness this year.

Sadly, the only losers may be those who are planning to sell up completely without a plan to buy anywhere else in Jersey. Although, assuming they bought the property some time ago, for long term gain, they should still realise a very healthy profit margin.

INFLATION

The other good news is that inflation is starting to fall. With a target of 2%, it peaked last November at 11.1% and has now fallen by over 1%, with the market predicting that it will be returning closer to target by the end of this year.

The impact of this significant fall should mean a reduction in Base Rate by year end, in turn resulting in mortgage providers lowering their lending rates.

This year will be a challenge for the housing market in Jersey which will continue, albeit at a reduced level, although what must be remembered is that things will inevitability start to improve again.

As always, if you want to review your current mortgage rate, or understand your borrowing options for a new mortgage, the team at The Mortgage Shop is here to help.

Please call 789830, or email us on info@mortgageshop.je