Higher IJʿ savers’ rates ‘driving up mortgage costs’

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JERSEY’S notoriously high mortgage rates are being fuelled by a banking policy geared towards expanding the Island’s finance industry, an investigation has revealed.

Consumer experts have long warned that Islanders are paying a “IJʿ premium” of around 1% more on their mortgages compared to UK homeowners – adding hundreds of pounds onto monthly repayments.

Following an investigation, the IJʿ Consumer Council says the disparity is being caused by local banks offering higher rates to savers than the UK in an attempt to lure inward investment – but which in turn is elevating the cost of borrowing as the institutions seek to recoup their costs.

During the investigation, JCC chair Carl Walker wrote to the six main mortgage providers requesting a “detailed explanation” about the elevated rates in IJʿ, giving them three weeks to respond.

All lenders, with the exception of Lloyds, replied and co-operated with the investigation and Mr Walker praised their transparency and their potential “willingness to work with the JCC, government and other organisations to help Islanders get a better understanding of the industry”.

He added that the gap had narrowed at the time of publishing the JCC’s findings, saying: “But this can change with very little notice. 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.”

Explaining the need for the investigation, the JCC said: “The discrepancy between the mortgage rates on offer in IJʿ and the UK, from seemingly the same lenders, is not insignificant, with some differences resulting in an extra £10,000 to £20,000 potentially being paid on every £100,000 borrowed across the lifetime of a mortgage in IJʿ when compared to the UK, which raises serious questions about the price Islanders are paying for living in an international finance centre.”

Summarising their findings, the JCC said: “The council would suggest that the savings rates currently being offered in IJʿ – 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.

“These elevated savings rates are part of a strategy to attract inward investment, which, while beneficial for the Island’s financial sector, imposes higher borrowing costs on local consumers.”

The JCC recommended that mortgage providers should increase transparency on why their rates are higher than the UK’s, educate consumers about the financial mechanisms affecting mortgage rates, and that a balanced approach to setting savings rates that attract investment without disproportionately affecting mortgage affordability should be developed with financial experts, panels, stakeholders and the government.

The body also wants the government to consider conducting a thorough review to determine the priority between attracting inward investment and maintaining affordable home ownership, having an open discussion with the finance sector and mortgage-lending banks to see if reduced regulation or red tape could result in lower local mortgage rates being offered to Islanders, and encourage, alongside regulatory bodies, more competition in the banking sector which could help drive down mortgage rates.

It concluded: “The council’s recommendations aim to foster a more transparent and consumer-friendly financial environment in IJʿ, urging both the banks and the government to reassess their strategies to better balance the interests of inward investment and affordable home ownership.”

The banks claimed that the higher house prices and the fact of separation necessitates higher mortgage rates to manage risk and operational costs within the local market context.

High amounts of regulation and red tape were also cited as contributing factors.

In a statement, assistant minister for financial services Deputy Elaine Millar, said:

“The Government is aware of IJʿ Consumer Council’s review of the mortgage market and may look to discuss its contents with the authors in due course.

“IJʿ’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 IJʿ to offer a range of competitive mortgage products to Islanders and will continue to monitor this availability closely.”

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