Jersey Home Loans is in a different position from the UK banks

From Rob Proctor, managing director, Jersey Home Loans.

I REFER to the letter from Chris Thomas (JEP, 17 December) concerning Jersey Home Loans and the rate that he is currently paying on his mortgage. In view of the intemperate language and misrepresentation of facts, I trust that you will publish this response.

Mr Thomas states that mortgage lenders have come under significant pressure from the media and the politicians in the UK to reduce their mortgage lending rates in line with recent Bank of England base rate reductions. This is not accurate. It is true that certain of the major banks (who are also resident in Jersey) have been pressured into reducing their rates – largely because of the significant government financial support that they have received. Jersey Home Loans has not sought nor been offered any such support and is not subject to the same pressure.

It is ironic that the very banks that Jersey’s top 500 policy protects from competition by restricting access to the Jersey savings markets to those very banks (in the top 500) are the ones that have had to be bailed out, while well-established, well-run and prudent building societies that can offer a real difference are not permitted to enter Jersey’s retail savings market due to the anti-competitive restrictions. It is also worth noting that the now nationalised Northern Rock Bank actually increased some of its mortgage rates recently.

The pricing of mortgages is not straightforward but it is simple. We lend money to people that we have borrowed either from individual investors (which is the substantial part of our funding) or in the wholesale markets. The cost of raising those funds in both arenas has not dropped in line with Bank of England Base Rate for various competitive reasons.

When it comes to setting rates, the Bank of England Base Rate is largely irrelevant. Remember too that many Jersey borrowers are on fixed-rate loans so are unaffected either way, while those borrowers who chose tracker rates have enjoyed the full benefits of the Bank of England rate cuts. So it is somewhat disingenuous of Mr Thomas to complain after deciding not to link his mortgage to Bank of England base rate.

When we have met with politicians in Jersey we have told them that we could offer better rates to mortgage customers and better rates to savers if they permitted us to raise deposits on the Island. There is seemingly no appetite to allow us on to the Island as a deposit taker even though so doing would have a beneficial effect on both borrowers and savers – but we have rehearsed these arguments with ministers and with others in a position of power on numerous occasions.

The refusal to budge means that we have had to raise our funds for Jersey lending from other markets that are arguably more expensive. At a time when retail and wholesale funding rates are not obeying the convention of logic it is only proper that we restrict our lending activities to the markets where we raise our funding. If there is any benefit to be derived from lower rates then it is entirely fair that we consider the needs of our UK domestic business first.

We are currently undertaking a review of our strategic options, including the possibility of a full withdrawal from Jersey. All of the severe problems in the financial markets have been encountered not by building societies but the major banks in the top 500 – a number of whom are in Jersey. If at the end of our review we cannot meet the needs of the Jersey people that we have strived to provide personal service to for the last six years then it will not be because we did not try but because of the politics and the personal interests of the few.

There is no doubt that when we entered the Jersey market as a lender we drove down margins for lending. In short, Jersey borrowers ended up paying less for their mortgages relatively than they would have done. Far more people have been able to establish themselves on the housing ladder. We estimate that our presence in the Island has saved borrowers more than £60m over the last six years, though we accept that anyone with a short-term view on only the last few months would judge our rates to be higher.

We believe that over the next four years not only can we provide superior rates of interest to Jersey resident investors but that we can also continue to provide a top-class competitive service to Jersey borrowers. We believe that we can offer a superior investor service and reduce mortgage rates at the same time. We estimate the benefit over the next four years could be in excess of £100m – the equivalent of £1,250 for every man, woman and child on the Island.

Until recently we were providing one in four of all mortgages in the Island. Jersey Home Loans lent more than any other lender in 2007 and in 2008. On average rates on mortgage products dropped after Jersey Home Loans entered the market and margins reduced by at least 1%. We were the major funder of the States sale of properties to first-time buyers.

All of these very positive effects are in jeopardy and the sad thing is that it is easy to fix but there appears no political will to do so. That is, of course, entirely at the choice and discretion of the States of Jersey – we are merely victims of poor government and so too are the residents of Jersey who are consequential sufferers.

Reliance House,

Sun Pier,

Chatham,

Kent.