OCTOBER 2024

The Governor of the Bank of England has said that he expects interest rates to fall gradually but has warned borrowers not to expect a return to the near- zero levels last seen four years ago, settling instead at a ‘’neutral rate’’.

The textbook description of a neutral rate of interest is the level at which monetary policy is set for stable prices and is neither stimulating nor restricting economic growth.

After the 2008 financial crash, central banks believed that interest rates needed to be at or close to zero to maintain economic growth. The neutral rate over the next decade, barring another financial crisis is currently expected to be close to 3%.

UK MORTGAGE PROVIDERS

In the UK, mortgage providers are expected to continue to reduce rates, possibly engaging in a price war as base rate falls, reintroducing income multiples up to six times salary, and offering in certain cases, 100% mortgages.

JERSEY LENDERS

This pattern might not be followed so closely by their Jersey counterparts who have to pay a premium for the funds they have to access to lend out as mortgages. Income multiples have all but disappeared and have been replaced by a rather complex risk-based calculation, which varies considerably between all of the local lenders.

Whilst 95 % mortgages, even 100% are available, these are not best advice in the local market due to falling house prices and the risk of negative equity happening very quickly after purchase.

FURTHER REDUCTIONS THIS YEAR?

Earlier this year there were great expectations that base rate would fall in August, then in September and now October, with financial markets now predicting a fall to 4.5% by the end of this year, possibly in two tranches each of 0.25%.

What should be taken into account however is the fact that the first Labour Budget is due for release on Wednesday 30th October, and this could have a detrimental effect on parts of the economy with a knock-on impact on base rate reductions.

2025 PROJECTION

In the meantime, the projection for 2025 is for the base rate to reduce further to 3.5% by year end. This news is very encouraging for anybody looking for a mortgage next year or whose fixed rate comes up for review during that time, as it is possible that by that stage five-year fixed rates could be closer to 3%.

5 YEAR FIXED RATES

In Jersey, some fixed rates have nudged down in the past few months, although five-year fixed options, whilst appearing to represent sensible planning for the future might not be the best choice as they will become very expensive to service by the end of next year if rates fall as predicted, leaving the borrower trapped for a further four years.

There is always the option to cancel the rate by paying a penalty, although this can be expensive with early repayment penalties being 5% during the first twelve months, reducing to 4% for the next twelve months and so on.

TWO YEAR FIXED RATES

In the current somewhat uncertain climate, most of our clients are fixing their mortgages for no more than two years only, and whilst these products are more expensive, they give the borrower the peace of mind that their payments are pegged for no more than 24 months should there be further reductions in base rate.

There is still an adventurous minority who choose a tracker rate, although this option will always be more expensive when compared to the two and five year fixed options.

PROPERTY ON THE MARKET

Places.je currently have 1704 apartments and houses on their site – this is the highest number that we have ever seen and is a clear indication that as asking prices fall and interest rates improve, there is likely to be a huge increase in activity in 2025.

The only stumbling block is the fact that mortgage providers are already stretched with delays of up to four weeks before applicants can have an appointment with lenders and in some cases even longer for mortgages to be approved.

With its direct links to all lenders, The Mortgage Shop is able to significantly reduce these delays by supervising the whole process from first interview to handover of keys on the day of completion.

BEST RATES FOR THE MONTH

The rates for October are starting to show a downward trend, and it is likely that this will continue on the ensuing months.

Bank of England Base Rate 5%
2-year Tracker rate 60% LTV	October 5.50%	September 2024 5.50%	January 2024 4.44%
2-year Fixed rate 60% LTV	October 5.04%	September 2024 5.34%	January 2024 5.79%
2-year Fixed rate 90% LTV	October 5.44%	September 2024 5.64%	January 2024 5.49%
5-year Fixed rate 60% LTV	October 4.54%	September 2024 4.84%	January 2024 5.29%
5-year Fixed rate 90% LTV	October 4.99%	September 2024 5.14%	January 2024 5.49%

 

Rates correct at 02.10.24