‘Batten down the hatches’ fixed-rate mortgage alert

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AROUND half of Island home owners on fixed-rate mortgages are likely to be hundreds of pounds worse off a month when their term expires over the next two years, an industry expert has warned.

Mortgage adviser Peter Seymour has told them to ‘batten down the hatches’ after the Bank of England raised the base interest rate to a 14-year high.

His warning is the latest blow for Islanders already struggling with the worst cost-of-living crisis for decades.

Mr Seymour, of the Mortgage Shop, said it was clear that the rise of 0.5%, to 2.25%, would have ‘a significant impact’ and leave Islanders having to make some unappetising cuts to their lifestyles.

He said: ‘The cost of paying back a mortgage has always been a large outlay, but it hasn’t been punitive while interest rates have been low.

‘Home owners have been able to pay their mortgage but also to enjoy holidays abroad, to buy new cars, to eat out regularly and make improvements to their homes – they will have to rein back on their lifestyles.

‘People won’t like it, but they will have to acknowledge the change and adjust their habits – it’s not a crisis, just a change in patterns of spending.’

While figures from the UK suggested that around a fifth of mortgage holders had tracker or variable deals, Mr Seymour said he ‘hoped the Jersey population had far more sense’ than to leave themselves in a vulnerable position.

Clients had been strongly encouraged to move to fixed-rate deals in recent years, Mr Seymour said, although he added that it was not usually possible to break a fixed-term agreement and move to new, longer-term arrangements without having to pay a penalty, which could be as much as 5% of the total value of the mortgage.

Using an example of a home owner with a £300,000 mortgage over 30 years, Mr Seymour said that a realistic figure for an existing fixed-term deal was 1.25%, equating to monthly repayments of £1,000.

If the fixed-term deal was to expire this week, the best current rate for a new five-year deal was 2.85%, leaving monthly repayments rising by 24% to £1,242.

With most observers expecting interest rates to continue to rise, Mr Seymour said that a ‘what if’ figure of 5% would leave the same home owner facing a 61% rise in their monthly repayment to £1,613.

‘People will just have to batten down the hatches if they want to stay where they are,’ he said.

‘When I set up 33 years ago, there were no fixed-price mortgages, and interest rates were 15.7% – then they fell to 10% and some people chose to lock in to fixed rates at that level.

‘Things would have to go badly wrong for us to see anything close to the double-digit rates that we had then.’

Roger Trower, director of Broadlands, predicted there would be casualties, although he hoped not in large numbers.

‘This will have an effect on those who have been used to low rates and didn’t heed the predictions about rates rising,’ he said.

‘Some home owners will have over-borrowed and failed to factor in the prospect of extra costs that result from higher interest rates, and those are the cases where people may have to sell.’

Mr Seymour said the current situation placed an even-greater importance on the government and Andium Homes to work together in providing help for first-time buyers through taking on responsibility for the deposit required to buy a home.

Thursday’s announcement from the Bank of England included an admission – for the first time – that the UK was entering recession.

This was followed by a mini-budget delivered in Westminster yesterday, with Chancellor of the Exchequer Kwasi Kwarteng announcing a series of tax cuts and economic measures that he said would boost growth.

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