‘WE won’t see a fall in the cost of housing yet,’ the Housing Minister has said, laying the blame on the Bank of England for continuing to use the ‘blunt tool’ of hiking interest on mortgage repayments to curb inflation.
Deputy David Warr said that the Bank had raised the base rate since the data in the Island’s latest RPI report was collated, meaning Islanders would not see their rates decrease for some time.
The bank raised the base rate from 4.5% to 5% last month, which has knock-on implications for those not on fixed-rate mortgage rates, who will see their repayments increase.
Deputy Warr added: ‘It won’t flatten out until the Bank of England have decided they don’t need to lower the inflation rate.’
Housing was once again the highest contributor to the annual rate of inflation, contributing plus 5.7 percentage points and increasing by 27.4% over the last 12 months to June 2023, driven by increases in the cost of mortgage interest payments.
The RPI(X) – the inflation rate without considering mortgage interest payments – was 6.1%.
Asked what help the government was providing to Islanders facing rising mortgage payments, Deputy Warr said: ‘At this moment in time, all that we can do is ask banks to be considerate in the event that people are struggling.
‘This can include extending the terms of the mortgage and encouraging those customers who find themselves in challenging situations to talk to their banks and mortgage providers.’
The Jersey Bankers’ Association this week confirmed that banks would ‘operate within the spirit’ of the UK’s Mortgage Charter, which requires lenders to help homeowners.
‘It’s important to remember that it’s not going to affect all mortgage holders, but only those people whose fixed-term contracts have come to an end,’ Deputy Warr continued.
He said the high contribution of housing to the overall RPI was ‘inevitable’, as ‘interest rates had continued to rise.
‘Given that the underlying inflation rate is now declining, now the Bank of England will determine whether they still need to put interest rates up further.
‘This does not reflect the very latest inflation rate increase, which went up after this data was collected. That’s the tool they use to force inflation down. It’s a blunt tool.
‘For those who are trying to get on the housing ladder, the one consolation is that housing prices are starting to fall.’
He continued: ‘We’ve done as asked and we’re already monitoring the situation very closely. If there is a sense that there are too many people getting into trouble, we will then determine at that point what to do, but there is not a huge amount of evidence that there are Islanders in mortgage distress.’
Members of Reform Jersey have this week criticised the government’s approach to the issue, particularly during a States debate which resulted in the rejection of a proposition from Deputy Geoff Southern to allow Islanders a 12-month grace period with mortgage repayments.
Deputy Southern said: ‘Some 2,500 Islanders wonder how they will cope with finding an extra £200 or £500 in their mortgage repayments when they are already stretched to the limit.’
Deputy Lynsey Feltham told the JEP: ‘It’s obviously disappointing that government says it has a relentless focus on housing when we’re not seeing action more quickly.
‘We still have a long way to go. Despite there being a small drop in inflation, it’s still very high compared to where we need it to be.’
