THE biggest hike to borrowing costs in 27 years could ‘put the brakes’ on Jersey’s housing market, an Island mortgage provider has warned.
The Bank of England yesterday announced that the base interest rate would rise by 0.5 percentage points to 1.75% – the largest single increase since 1995.
Local lenders have said the rise means homeowners and house seekers who are not on the longest-term, fixed-interest-rate mortgages risk monthly repayment costs that could end up swallowing their budgets.
Peter Seymour, managing director of The Mortgage Shop, said: ‘The increase might put the brakes on the Jersey property market, in particular the busy first-time buyer sector, where it has already been noticed that some transactions are failing due to uncertainty about the future cost of borrowing.’
When mortgage options come to the end of the term, ‘many borrowers will be faced with a noticeable increase in the monthly cost of servicing the mortgage at a higher interest rate’, Mr Seymour said.
While the increase follows a decades-long period of minimal interest rates, Mr Seymour said borrowers needed to adjust to the new reality.
‘A whole generation has grown up with artificially low interest rates, and borrowers will in the future have to come to terms with the fact that new cars, long-haul holidays and expensive kitchen and bathroom refits will have to take a back seat in order to afford higher interest rates.’
One of the Island’s biggest mortgage providers, Skipton International, said they would be reviewing mortgage products in light of yesterday’s announcement.
Skipton Mortgage Centre manager Lorraine McLean said: ‘Borrowers with a variable or base-rate tracker mortgage are likely to see their payments increase. However, as rates have fluctuated over the past year, fewer borrowers are choosing variable rates, opting instead for fixed-rate mortgages as a security against potential rises.
‘Those on fixed-rate deals will be sheltered from interest-rate rises for the duration of their product term.’
Homeowners were warned in May that they should prepare for ‘choppy waters’ after the Bank of England raised its base interest rate to 1%, which was its highest level since 2009 and fourth hike since December last year.
Ms McLean said at the time that there were ‘choppy waters ahead, not just for the UK, but for Jersey as well, and house owners across the Island need to plan ahead as best they can to futureproof their own private situations’.