Peter Seymour, of The Mortgage Shop, reflects on how inflation and interest rates are impacting the property market
IN the Jersey property market, it is the first few weeks of activity in the new year which usually dictates how the rest of the year is going to pan out for estate agents and lenders. The start of this year has been very slow, although this must be expected with rising inflation and the Bank of England base rate currently at 4.25%.
Earlier this month, the Bank of England’s chief economist suggested that a further rate increase in May could still be necessary to allow the central bank to ‘see the job through’ in its battle to combat high inflation and return it to its target of 2%.
Lending criteria changes
Mortgage providers have changed the criteria that they use to decide how much they will lend to people seeking a mortgage, applying high stress tests to applications, and this is likely to continue until base rate starts to fall again.
Following the most recent rate rise, one leading lender, offering a five-year fixed rate of 6.14% for borrowing at 90%, announced that the stress rate it was now going to use had risen to 10.39%.
This means that potential purchasers need to be able to afford their mortgage at this higher rate for their application to pass this test.
Jersey house prices
Jersey house prices, which have increased dramatically in the past decade, may now have to be reviewed downwards as purchasers quite simply cannot secure the necessary lending to be able to buy at current asking prices, which means that vendors, or buyers, may have to reduce their expectations if they want to secure a sale.
There are no statistics in Jersey that give any indication of by how much house prices should fall although, in the UK, typical house prices are currently reported as being marketed 23% higher than the average selling price, which suggest that sellers are setting their sights far too high.
The mortgage market
The mortgage market is divided into two sectors – purchasers and existing borrowers who need to find the best interest rate because their current rate is coming to an end.
For purchasers, it is recommended that they use a mortgage broker, who has access to the whole of the market, working behind the scenes with the mortgage providers’ lending teams to access the highest level of borrowing, if required, at the lowest interest rate available.
Existing borrowers may not have to go through the whole application process again, if they are best advised to remain with their existing lender, who may offer competitive retention products.
Once again, a mortgage broker is recommended to help determine whether this is the case or whether a change of lender might secure a better long-term product. Either way, a broker can help you consider whether a tracker rate or a fixed option is best suited.
Rates constantly under review
In the current climate, all lenders are constantly reviewing their portfolio of mortgage options, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates.
All is not bad news, as the downturn in the property market has reinvigorated competition between lenders, who sometimes decide not to put up their fixed mortgage rates, despite the Bank of England doing so.
The year is still young, but we can draw initial comfort from the fact that the early signs for the current 12 months might not be as bad as may have previously been feared.
Current interest rates
The best rate options that were available at the beginning of April have shown a downward trend in fixed rates since the start of the year, which is encouraging, as lenders take into account market visibility and future trends. If base rate increases again in the next few months, then the certainty is that tracker rates will rise although fixed rates, in particular those that are fixed for five years, might be only marginally affected.
The Mortgage Shop was established 33 years ago and has helped many thousands of Islanders to acquire their first home, to trade up to their forever home, to acquire an investment property or to provide the short-term funding needed by so many people when rebuilding or extending their homes. The professional team at The Mortgage Shop is available to offer advice and solutions that cover the whole of the market. Call us on 789830 for more information.
Henley Financial, our sister company, specialises in financial services and can arrange the all-important life assurance to run alongside your mortgage.