Double whammy for home owners

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HUNDREDS of struggling homeowners were hit with a double blow yesterday after the Bank of England raised interest rates to their highest level in almost 15 years and warned that inflation would not fall as quickly as expected.

The base rate was hiked by a quarter of a percentage point to 4.5% – the 12th consecutive rise – as the Bank tries to stem stubbornly high inflation.

While the rise is good news for Islanders who have savings in the bank, Jim Coupe – managing director at Skipton International – said that the widely predicted increase ‘may add further worry to Jersey residents already impacted by higher inflation’.

Jersey’s inflation rate remains at its highest level since the 1980s, according to the latest Retail Prices Index, which was released last month.

During the 12 months to March, the cost of living rose by 12.7%, with housing costs continuing to serve as the main driver for the overall rate, having increased by 27.4% over the previous 12 months.

And the Bank of England warned yesterday that the UK’s inflation rate would not fall as sharply as predicted.

The Bank now expects inflation at the end of the year to be above 5%, compared with the below 4% it forecast in February.

Although the rise will affect those on tracker mortgages, customers on fixed-rate deals will be protected until their term expires.

And those seeking new deals now may not see an immediate impact as lenders, reluctant to make mortgages even less attractive, may in the short term be prepared to absorb some of the impact.

Mr Coupe said: ‘As the financial markets were pricing May’s base rate rise into the swaps used to support fixed-rate mortgages, this rise in itself should make little difference to the pricing of new fixed-rate mortgages.

‘However, market uncertainty is now whether prices will rise further and how quickly rates will then decrease, which may affect future swaps and hence future fixed-rate pricing. As always, to anyone who is concerned about their mortgage or are struggling to make payments, my advice is to speak to their mortgage lender as soon as possible.’

Peter Seymour – managing director of the Mortgage Shop – said it was a ‘worrying time’ following the Bank’s base rate rise.

He acknowledged the difficulty these conditions of rising rates created in advising potential borrowers. While fixed-rate options were attractive because of the certainty they gave borrowers, there was also the possibility that those on tracker mortgages would benefit in future when interest rates began to fall.

But although mortgage business has been crippled by the rising interest rates and their impact on stress-tested rates – which mean that borrowers must be able to repay at around twice the most favourable five-year fixed rate of 5.04% – Mr Seymour said the forthcoming quarterly house price index published next week was likely to show the impact of falling prices.

‘I believe that there is a good change that the housing market will start to recover as more realistic prices are being asked,’ he said.

In a statement, Treasury Minister Ian Gorst said that the rise would be ‘unwelcome news to many Islanders’ but people must remember ‘that interest rates are being increased to bring inflation back down’.

He added: ‘Jersey’s economy is in a strong position, the number of people actively seeking work is at an all-time low and the government will continue to help Islanders if we see inflation remaining high.’

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