THOUSANDS of households already struggling with the spiralling cost of living were yesterday hit by more bad news as the Bank of England raised interest rates to a 30-year high, meaning many could soon be hundreds of pounds worse off a month.
The announcement prompted Housing Minister David Warr to urge lenders to show ‘compassion’ to Islanders who default on their mortgages.
The new rate of 3% represents an increase of three-quarters of a percentage point – the largest single rise since 1992 – and could be the final straw for home owners who are already struggling to make their monthly payments.
Deputy Warr and Assistant Treasury Minister Richard Vibert have both urged lenders to exercise ‘compassion’, with the latter politician noting that the rise comes amid ‘unprecedented’ circumstances, including the war in Ukraine, which were impacting economies across the globe.
Based on figures provided by Peter Seymour of the Mortgage Shop, the monthly payment on a £300,000 five-year fixed-rate loan – with a 10% deposit – has risen by over £600 from £1,108 in January to £1,742 as of yesterday.
Deputy Warr said: ‘We know that between 200 to 300 households affected by the previous rise had their mortgages rolled over – a lot of the impact can be attributed to the amount of borrowing in the Island. Jersey has been more bullish [in terms of lending] than the UK, so it also about risk management by the financial institutions.’
He added: ‘The government can’t turn around and tell the banks “you must do this” but I do think they should exercise caution and compassion. I’m sure that they don’t want to be seen throwing people out of their homes but we also, as a government, need to look at what levers we can pull to ensure Islanders have enough money to make their mortgage payments.’
Mr Vibert said: ‘One would hope some compassion would be shown – we are in unprecedented times. Some people may have taken out a mortgage that was on the very edge of what they can afford, or may be on variable rates.’
He pointed out that some of the factors driving the increase – such as the war in Ukraine – could not have been foreseen by borrowers.
Treasury Minister Ian Gorst said: ‘This interest rate rise has been expected for the past few weeks. As that’s the case, retail banks will have already priced the rise into their mortgage products where they can, such as their fixed-term rates.’
He added: ‘It remains to be seen how the Bank of England’s announcement will affect measures of inflation in Jersey. The UK interest rate increases are targeted at reducing inflation and this will help in Jersey as well, although in the shorter term it might actually increase RPI.
‘Nevertheless, ministers remain firm in their commitment to explore the case for further measures to support Islanders if RPI were to increase above current projections, provided that further measures were affordable and didn’t threaten the stability of the Island’s finances.’
He added that the government’s mini budget – which included a range of measures to help Islanders with the cost of living – had ‘factored in’ the higher inflation rates.
‘However, we shouldn’t underestimate the new impacts of these interest rate rises on households. Those not on fixed-term rates or whose contracts are up for renewal could see significant mortgage cost increases and the government is actively assessing these costs and possible further help that goes beyond the recent mini-budget,’ he added.
‘It is important to recognise that Jersey’s economy is in a strong position and in good shape to face the current challenges. Nevertheless, ministers are keeping the situation under review and will respond with further measures as required.’
