Risk of higher mortgage payments after rate rise

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THOUSANDS of Jersey homeowners face another hike in mortgage repayments after the Bank of England raised interest rates to their highest level in 14 years.

UK residents on tracker mortgages will now be paying an average of £50 more per month – an increase which is likely to be higher locally – after the bank pushed ahead with its tenth consecutive rise in the base rate in a bid to stem inflation.

Meanwhile, Islanders are anxiously waiting to see what effect the 0.5% increase, which took the base rate to 4%, will have on new fixed-rate mortgages.

The rise will heap more financial strain on homeowners already struggling amid the surging cost of living which recently saw inflation hit its highest level since the early 1980s.

But after announcing the rise, Bank of England governor Andrew Bailey hinted that potential good news was on the horizon, saying that there had been a ‘turning of the corner’ with inflation, but that it was ‘too soon to declare victory’.

Peter Seymour, of The Mortgage Shop, said Islanders would have to ‘wait and see’ whether lenders would raise rates on their fixed-term products.

‘While there have been changes to the tracker rates, the five-year fixed options haven’t changed,’ he said.

‘This is due to the fact that lenders have not been following base-rate rises as they have had to remain as attractive as possible to a diminishing market.

‘We need to wait and see what is going to happen in the next few weeks as lenders respond to the latest base-rate increase.

‘Market commentators are suggesting that banks won’t revise their mortgage rates upwards despite the 0.5% increase.’

He explained that lenders were taking a more ‘commercial approach’ to the base-rate hikes.

‘The fact is that if they continue to put rates up, then they will do no business,’ he added. ‘Our view is that the UK base rate may have reached – or is close to reaching – its peak.’

Housing Minister David Warr said the reality faced by the banks was ‘a commercial one’.

‘The feedback I am getting at the moment is that there are a lot of people out there who have yet to accept this market correction. Transactions have slowed, the market, at the moment, has stalled and banks are tightening up their lending criteria,’ he said. ‘Hopefully if the [base rate] has peaked, that will be good news for those who are trying to assess what their mortgages will be in the coming months.

‘Maybe we have reached peak unaffordability.’

Treasury Minister Ian Gorst said that government coffers would receive a boost from the base-rate rise.

This is because Jersey’s main industry is a deposit taker so its funds and accounts increase in value when interest rates go up. The government’s own savings – such as its £1 billion Strategic Reserve – will also receive an injection.

Deputy Gorst said: ‘All the indicators in the [most recent] Business Tendency Survey show that the financial services sector is confident about 2023.

‘But there are these headwinds, such as he continuing housing crisis and difficulties around recruitment.

‘But ministers are thinking about them and working on solutions to these issues.’

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