Are lower mortgage rates on the horizon?
Since 2009 we have all experienced historically low Bank of England base rates which resulted in mortgage rates as low as 1.39%. However due to world events in 2022 we have steadily seen an increase in inflation resulting in higher mortgages rates in 2023 which greatly impacted the mortgage market. Whilst an increase in mortgage rates was inevitable it has still come as a shock to borrowers who have a fixed term mortgage coming to the end of its term.
The higher mortgage rates have greatly impacted the number of completions in the housing market locally. This can be seen in the number of sales in the third quarter of 2023 which was 62% lower than the same quarter in 2022. Buyers are being more cautious when it comes to making significant financial decisions.
If a seller needs to sell their property, then they will need to be more realistic with the sales’ price to achieve a sale it is starting to become obvious but there appears to be a bit of a housing correction happening with a number of transactions now being completed at 20% – 30% below the listed asking price.
As well as higher mortgage rates the local market has also been impacted with investor stamp duty of an additional 3% when purchasing a second property.
The good news is we can see a light at the end of tunnel. UK inflation has dropped from 9.6% in 2023 to 4.2% today. If this trend continues, then we could see a reduction in the Bank of England base rate, resulting in lower mortgages rates. We can already see an impact from the lower inflation rates with some UK lenders now offering 5 years fixed rates at 3.99% if the LTV (loan-to-value) is below 60%.
At present and over the course of the year, we could see the return of the Labour government in the UK and perhaps Donald Trump returning to power in the US. With that and two wars still continuing in Ukraine and Gaza we can hope that rates continue to move in a downward trend however with a turbulent year ahead we are still quietly optimistic that lending will become more attractive again.
We look forward to the March and May meeting of the Monetary Policy Committee, to see if they lower the base rates giving borrowers some much needed respite.
UK Interest rates vs Jersey Interest rates
We have been reading in the media and on social media several people concerned that Jersey interest rates don’t move in line with the UK counterparts.
Unfortunately, rate reductions are not always passed on to Jersey clients like you see in the UK.
This is for several reasons but in more simplistic terms, banks were required to be ring-fenced in the aftermath of the 2009 ‘credit crunch’ and as such the rates being able to be offered by an offshore arm of a bank will be much different to the onshore UK (very often PLC) business. The balance sheet of an offshore ‘high street bank’ will be much different to that of its PLC parent company.
It can be likened to the buying power of a corner shop acquiring its stock to Tesco. Clearly Tesco will be able to obtain their stock at cheaper prices and therefore offer their products at a different price than the corner shop.
This is very similar in the Jersey lending market. Rates should come down in Jersey but don’t expect to get the same rates as you see advertised in the UK.
Disclaimer
Please note that this article does not constitute financial advice.