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Lenders respond to questions over higher mortgage rates for Jersey borrowers

Higher mortgage interest rates in Jersey could be partly down to banks trying to attract non-residents to put their money here.

Jersey Consumer Council wrote to lenders in March asking them to justify the higher cost of borrowing compared to the UK.

Six replied, all saying that they operate separately from their UK equivalents, with different risk levels and higher operating costs.

But Carl Walker from the JCC says they also hinted at another factor.

"The Council would suggest that the savings rates currently being offered in Jersey, which are higher than those in the UK, are a significant contributory factor to the higher mortgage rates.

"The more the banks attempt to attract inward investment by offering better savings rates than those on offer in the UK, the higher the lending costs need to be in order to cover the interest paid on savings and make profit for the bank."

Carl says, while the elevated savings rates benefit the island's financial sector, they impose higher borrowing costs on locals.

JCC launched the investigating because of mounting concerns about rising mortgage repayments.

The Bank of England base rate has risen 14 consecutive times since December 2021 - to its current 5.25% - as part of measures to tackle inflation.

The steep hikes that islanders have faced in repayments as a result has highlighted the differences in products offered by UK lenders.

Carl says even the smallest percentage difference means massive extra costs;

"At the time of launching the investigation in March 2024, a number of banks were offering local rates at more than 1% higher than the UK equivalent.

"The gap has closed at the time of writing this report, although can change with very little notice. That said, even the smallest increase in mortgage rates have a significant impact on the total amount repaid, due to the size of the loan and the length of time it takes to be paid off.

"Some differences result in an extra £10,000 to £20,000 potentially being paid on every £100,000 borrowed across the lifetime of a mortgage."

The JCC has made several recommendations, including that the government considers reviewing the priority between inward investment and affordable home ownership.

It is also suggests a review of regulation and red tape that could result in lower local mortgage rates being offered, setting a cap on the maximum difference between investment and lending rates and encouraging more competition by exploring measures that would attract more mortgage providers to the island.

Asked to comment on the review's findings, Treasury Minister Deputy Elaine Millar told us the government 'may look to discuss its contents.. in due course'.

“Jersey’s housing market has many different characteristics to that of the United Kingdom and there is significantly less choice of mortgage lenders due to the modest market size.

"We continue to encourage banks in Jersey to offer a range of competitive mortgage products to Islanders and will continue to monitor this availability closely.”

The review has also been shared with the Financial Ombudsman and the Bankers Association. Carl Walker says the JCC will keep the pressure on:

"People getting on the property ladder is a massive issue at the moment, especially for the younger generation. If is not going to go away anytime soon so we have got a role there to keep that pressure on everybody to see if they can help close that gap and make home-owning more affordable for everybody."

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