SEPTEMBER 2024

The Monetary Policy Committee of the Bank of England will meet on 17th September to discuss whether it is time to further reduce Base Rate that currently stands at 5%.

FURTHER CUTS IN INTEREST RATES

Markets are currently pricing in two more cuts this year which would bring the rate down to 4.5%, with further reductions to follow next year, although economists are being more cautious, suggesting that only one cut will be made, with November being the most likely month once the
MPC has a fuller picture when the UK Budget is delivered on 30th October.

 

These reductions have been made possible after the annual rate of inflation which reached a 41 year high of 11.1% in October 2022 fell back to the policymaker’s target of 2% in May.

 

GREAT NEWS FOR BORROWERS

All mortgage providers in the UK have reduced their interest rates during August as a result of the drop in base rate, although their local counterparts took no action to follow suit during that month.

 

At the start of September however, two lenders announced new lower rates which are yet to have an impact on the system. What is likely to happen is that other lenders in Jersey will now introduce reductions to their portfolios, although I will be unable to comment on these due to print deadlines.

 

These changes are the best news that the market and in particular borrowers, will have had for several years, although the true value of the reductions will not be felt until next year when further cuts are forecast.

 

THE HOUSING MARKET

When mortgage rates peaked several years ago this resulted in the local housing market shrinking dramatically with many properties falling in value by at least 25%.

 

House prices typically rise when interest rates are cut, although this is unlikely to be the case in Jersey as affordability constraints will continue to be imposed by all lenders until rates have fallen further. This means that house prices will have to continue to fall for the foreseeable future.

 

PROPERTY FOR SALE

Checking the property portal places.je, there are currently 1685 listings which make interesting reading.

First Time Buyers are well served with a choice of 117 flats that are priced at under £300,000, some with a parking space as well which makes fantastic value, especially when you consider that individual parking spaces are selling for £50,000 in St Helier.

 

For home movers and families looking for three bedrooms and a garden, then there are 345 properties on the market in the range £500,000 to £700,000. Moving further up the scale, then there are 185 houses for sale in the range from £2m up to £10m.

 

 

 

 

 

WHAT RATE TO CHOOSE?

For years, borrowers have tended to play safe by locking into a fixed rate to give them peace of mind.

This frequently works well if you can take advantage of a low rate that can be fixed for five or even ten years at a time when an increase in base rate might be on the horizon, although it is not always possible to get it right.

 

All fixed rates carry an Early Repayment Charge which, for example, with a five year fixed rate, is usually 5% if the capital is repaid in the first year, reducing 4% if repaid in the second year and so on. With two year fixed, a penalty of 2% will apply, reducing to 1% in year two.

 

In the present market, the lowest interest rates are fixed for five years which is currently the longest period available, although should rates fall, there is a possibility that the borrower will become trapped in a facility that is going to cost more than it should.

 

Two and three year fixed rates are also available, with the two year facility currently being the most popular as it offers short term security without the worry of having to pay more for longer once rates have fallen.

 

BEST RATES FOR THE MONTH

Best rates for this month we are starting to see 5 year 90% rates drop under 5%.