Noel McLaughlin, of Butterfield Bank, replies:
IT is important to bear in mind the overall cost of a mortgage when buying a home.
Interest rates determine how much the homebuyer is charged to borrow, and a lower interest rate means repayments are lower, so will save the homeowner money over time.
When consumers pay less in interest, they have more money to spend and are more willing to borrow and invest. This stimulation of the wider economy can be beneficial, as we have more disposable income to spend. Low interest rates make mortgages more appealing and increase affordability to prospective homebuyers, particularly when considering the average price of a property in Jersey now stands at £567,000 – a 5% increase on the previous year.
The current low rate of interest, combined with pent-up demand through the lockdown, saw the housing market enjoy a surge of activity in 2020 which is continuing this year. As people spent more time in their houses, the importance of the home was emphasised, as were any needs that were not being met, such as having outdoor space or a home office. The latest figures from the Government of Jersey show there was a 20% increase in the number of properties sold during Q4 2020 compared to the same period the year before.
Interest is the reward banks receive for the risk of loaning money to borrowers, and rates vary across mortgage providers. While looking around for the most attractive interest rate is important, homebuyers also need to consider their needs and financial situation. Having different mortgage products on the market allows borrowers to balance their desired flexibility and security preferences with taking advantage of low interest rates. A base rate tracker mortgage, for example, follows the Bank of England base rate. Monthly repayments will be smaller while rates are low, like they are currently, but will also increase as the interest rate rises again, which it will – we just don’t know when. However, for those who want more security there are fixed-rate mortgages which provide assurance of knowing what the monthly repayments will be for a fixed period, often two or five years and, in some cases, ten years.
Low interest rates ultimately help homebuyers by offering greater flexibility and the chance to own their ‘forever home’.