Mortgage market update

The Year So Far

What a year so far! In January we were told that the country was heading into recession, that Bank of England Base Rate was close to peaking at 4% and that inflation had fallen and was likely to continue to fall.

Now entering the second quarter, we are told that whilst the risk of recession was receding, a decision to raise the Base Rate on 23rd March to 4.25% became virtually inevitable to help curb inflation that had unexpectedly continued to rise. There had been speculation in the weeks before that the Bank might pause any further increases in the light of the potential world banking crisis, which we are assured is now under control.

These confusing messages can do nothing other than undermine the confidence of the local market, although it is important to look positively towards the latter part of this year, when inflation is expected to fall, followed by a subsequent reduction in Base Rate.

Lending Criteria

Mortgage providers have changed the criteria that they use to decide how much they will lend to people seeking a mortgage, employing high stress tests to their 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%, announced that the stress rate they were 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.

The housing market is now faced with a situation where purchasers quite simply cannot secure the necessary lending to afford 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.

Asking Prices vs Selling Prices

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.

Jersey Statistics produces house price figures quarterly in arrears, and these should be announced sometime in May, when a much clearer picture should emerge.

In the meantime, sellers who advertise their property at too high a price could find that their home lingers on the market for months. The unfortunate by product of this is that the longer it remains, the less interest it will attract, with potential purchasers assuming that the months of marketing is a sign that there must be something wrong with the property.

Current Interest Rates

The best interest rates that were available at the beginning of April show 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.

Best Rates

Rates correct at 03/04/23

For all mortgage enquiries, from First Time Buyers, Home movers or re-mortgagers, bridging finance and development funding, 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