The promise of a reduction in Bank of England Base Rate and a subsequent fall in the overall cost of borrowing in the first half of the New Year no longer exists.

INTEREST RATE CHANGES

This hope originally centred around the fact that with the UK Cost of Living Index having reduced significantly, the Bank of England would then have been able to reduce Base Rate from its current 5.25% down to 4.5% by year end in three drops each of 0.25%.

At its meeting on 9th May, the Bank decided to hold the current rate, although there are positive reports that the country will now have to wait until September before one sees any reductions. 

Since the beginning of the year the world economy has taken a battering, and there are fears that the cost of living might start to creep up again in the ensuing months in the UK, EU and America, who all work together in an attempt to achieve uniformity.

THE GAP BETWEEN RATES IN THE UK AND JERSEY

At the beginning of the year, all local mortgage providers came under fire from the media and the Government levying criticism over the difference between mortgage interest rates applied in the UK as opposed to the higher level applied to interest rates by the same institutions in Jersey. 

In January, the average interest rate in the UK was 5.2% compared to 6.3% in Jersey – a difference of 1.6%. By April, this gap had reduced to 0.7% and we now find that Jersey lenders are on a par with their UK counterparts or marginally better.

What has happened is that mortgage providers in the UK, in anticipation of a fall in Base Rate early in the year, significantly reduced the margin on most of their products, while Jersey lenders took no action, waiting until later in the year to reduce the cost of most of their products. They have not yet followed the UK lead, although it is possible that they might do so in the next few weeks.

HOUSE PRICE INDEX

Statistics Jersey have just released their House Price Index for the first quarter of this year. This well-presented report suggests that prices in Jersey have fallen by 2% since the last quarter of 2023 and 6% lower than the corresponding quarter in that year.

Unfortunately, the methodology used to prepare these reports does not reflect the current market or record the amount by which prices of property have had to fall in order for a sale to take place. 

What has not helped is the fact that many recent transactions have been sales on new developments where prices have been agreed for anything up to three years ago, so giving an unrealistic view of the current market.

The latest report shows an average reduction in a one bed flat of £13,000, whilst the average price of a two-bed flat has fallen by £88,000. Three-bedroom houses have fallen by an average of £42,000.

These numbers are still not enough to kickstart the property market in the Island, although reductions in excess of 20% on some transactions that have taken place in the past nine months or so, will slowly filter through to influence a continuing reduction in asking prices.

The strong interest in buying and borrowing that our team at The Mortgage Shop has seen since the beginning of the year has slowed to some extent, although it is likely that the market will start to pick up as soon as there is positive news about interest rate reductions.

JERSEY FISCAL POLICY PANEL

The quarterly reports prepared by Statistics Jersey would appear to have influenced the findings of the Jersey Fiscal Policy Panel, a group that provides the Government with regular updates on the economy.

The Panel’s recently released report on the economy includes the figures prepared by Statistics Jersey which means that the Government might not be receiving the whole picture, resulting in policy decisions being made which do not reflect the reality of the current market.

MORE PROPERTIES FOR SALE

A monthly update on the property portal places.je reveals that a total of 1508 flats and houses are currently being advertised for sale. This is the largest number of properties that we have seen for a long time and suggests that the market is starting to recover as buyers/borrowers reconcile themselves to the fact that higher mortgage interest rates are here to stay.

The good news for First Time Buyers is that there are 472 properties, mainly flats that are listed in the price range up to £500,000, with a further 462 in the range between £500,000 and £700,000.

BEST RATES

Our best rates comparison this month shows little / no difference to the figures from April, although the trend to borrow at either a tracker rate or a two-year fixed rate might now need to be reviewed in favour of a longer term fixed rate.

Bank of England Base Rate 5.25%

2-year Tracker rate 60% LTV: May 2024 5.75% (April 2024 5.75%, January 2024 4.44%)

2-year Fixed rate 60% LTV: May 2024 5.34% (April 2024 5.34%, January 2024 5.79%)

2-year Fixed rate 90% LTV: May 2024 5.64% (April 2024 5.64%, January 2024 5.49%)

5-year Fixed rate 60% LTV: May 2024 4.84% (April 2024 4.84%, January 2024 5.29%)

5-year Fixed rate 90% LTV: May 2024 5.14% (April 2024 5.14%, January 2024 5.49%)

Rates correct at 14 May 2024