JANUARY 2025

For anybody wishing to buy property, raise a mortgage or looking for the best product when seeking a remortgage, last year was probably the most confusing and frustrating that we have seen for a very long time.

THE CHALLENGE

The UK General Election, the announcement of the Autumn Budget, troubles in the Middle East, Donald Trump’s re-election and his promise of extreme import sanctions and the continued Russian invasion of Ukraine all conspired to create an economic nightmare for decision makers.

The Governor of the Bank of England has always been frustratingly conservative with his announcements about future movements in base rate, and it was therefore a surprise when in early December he announced that there were going to be four rate cuts in 2025, taking Base Rate down to 3.75%. It was also suggested that further reductions could follow in the next two years.

CONFUSING INFORMATION

Shortly afterwards, the latest Cost of Living figures were published showing that inflation was on its way up again. At the same time, Swap rates, which dictate the price paid by mortgage providers for the funds that they lend out as mortgages showed an upward increase which in turn meant that lending rates increased instead of reducing as everybody had expected.

A POSITIVE INCREASE IN ACTIVITY

Last year did not look good on the balance sheets of many businesses connected to the Jersey property or lending market. This did however gather momentum in the second half with increased activity in the final quarter. The reason for this change can be attributed to ever reducing asking prices for houses and flats which will no doubt continue into this year. The most noticeable change however is the attitude being adopted by buyers who now realise that they must sacrifice current lifestyle if they wish to achieve the dream of home ownership.

FINDING A DEPOSIT

A deposit is always a stumbling block, and it is impressive to see how significant funds can be accumulated in just several years by potential buyers giving up their rented accommodation to live with family; putting aside one salary, cutting out costly nights out and lowering their sights in respect of expensive holidays and cars. Just imagine how much could be accumulated in a year, let alone two! With falling interest rates, the subsequent monthly cost of the mortgage should still leave you with sufficient funds to have the occasional meal out or to start a family.

A DIFFERENT SLANT

There is also a scheme in the market that allows for a deposit to be saved by paying a refundable rent for the first two years before purchasing the property. This is a well thought out way for first time buyers to get onto the market and will no doubt attract a lot of interest – call our team at The Mortgage Shop if you would like more details.

According to places.je, the year has started off with 1623 houses and flats already on the market and this number could increase once vendors realise that it is starting to show signs of a recovery.

Vendors must however acknowledge that the property they are marketing is not going to attract the inflated prices that were being paid post Covid when interest rates increased substantially so resulting in the situation in which we now find ourselves.

POSSIBLE RATE REDCUTIONS

Being positive, it is likely that there will be some downward movement in interest rates and this could translate into lower fixed rates during the first half of the year. The Monetary Policy Committee of the Bank of England, meets in February for the next review of Base Rate. Indications are that the Bank will continue with cuts this year, although markets think that there will be fewer, perhaps only one, so reducing Base Rate at 4.5%.

Many economists maintain that this is the wrong call and believe that rates must be cut multiple times.

If the rate were to be reduced by 1% by year end, then borrowers should expect to be paying slightly over 4% for a 90%, 5 year fixed rate mortgage, reducing to 3.5% for a 60% mortgage.

There is still some way to go to reach that stage, so that it might be prudent in the interim, when securing a mortgage, to lock into a 2 year fix, which will be more expensive in the short term, but will put borrowers in a better position of choosing even lower rates should they become available by 2027.

INTEREST RATES

Our interest rates comparison this month show a reduction since January 2024 and it will be interesting to see how these will look as the year progresses.