October 2023

The best news for many months was revealed in September when the Bank of England decided to hold Base Rate at 5.25%. This came as a surprise to many observers who had factored in a further rise of 0.25%, despite the fact that UK Inflation had fallen.

It’s happened before

The last time that Base Rate had been at this level was in February 2008, when Jersey was suffering from a not dissimilar situation to what we are currently witnessing, with a housing market that wasn’t moving.

The difference between then and now is the fact that Base Rate had been running at a much higher level than this since October 1977, with a peak of 17% in November 1979, although this did not prevent the property market from being busy during that period.

Market dictated by asking prices

The level of activity in the market was dictated by asking prices, which were pegged, partly by States intervention and also by vendors who recognised that they had to ask for a realistic price if they were going to achieve a sale. In 2023, we no longer have States’ intervention, which means that the only way the market is going to revive is for asking prices to fall even lower than we are currently seeing.

The cost of borrowing is reducing

Since the beginning of September, mortgage providers have been reducing the cost of their mortgages with the best 5-year fixed rate on a 60% Loan to Value currently standing at 4.89%, although this is only available in the UK. In Jersey, the same products are on offer from all lenders, in a range from 6.19% up to 6.80%, which shows that offshore lenders are falling well behind their UK counterparts.

Support to prevent arrears

It is inevitable that any number of borrowers will have problems in servicing their mortgage when the existing fixed rate comes to an end – this not something to be ashamed of and in many cases the problem can be resolved by talking to your lender, or a mortgage broker. 

What is the support that is available from the banks?

• A temporary mortgage payment holiday where monthly payments are paused for a period of up to six months, although do remember that interest will be added to the outstanding mortgage balance.
• A temporary switch to interest only payments -instead of paying off the capital, the loan’s interest is still serviced regularly, although no capital repayment will be made.
• An extension to the mortgage term which will mean that the monthly payments will reduce, but the total level of interest will mean that the same amount of debt over a longer period, will result in more interest having to be paid overall.

 

Interest rates for October

None of these options should be used unless they are the last resort, as lenders have to report this type of activity to the central debt agency, and this could have a significant impact on the ability to borrow for many years to come. 

The best rates comparison does not yet reflect any future reductions in interest rates from local lenders, although it is hoped that these might follow in the next weeks.

Bank of England Base Rate 5.25%

2-year Tracker rate 60% LTV - 5.95% (January 4.44%)

2-year Fixed rate 60% LTV - 6.24% (January 5.79%)

2-year Fixed rate 90% LTV - 6.64% (January 5.49%)

5-year Fixed rate 60% LTV - 5.74% (January 5.29%)

5-year Fixed rate 90% LTV - 6.19% (January 5.49%)

Rates correct at 03/10/2023