Mortgage shock
Saturday 8th November 2008, 10:00AM GMT.
A QUARTER of all Islanders with a mortgage face an uncertain future following the announcement that a leading lender is all but shutting up shop.
Jersey Home Loans, which has a lending book worth an estimated £1 billion, has revealed that it is no longer offering any new loans in the Island. The hardest hit in the immediate term will be those who have been offered mortgages by Jersey Home Loans, but who are likely to have that offer withdrawn – possibly leaving their dreams of a home in tatters.
And those who already have mortgages may be left with little choice but to foot the considerable cost of swapping lenders because Jersey Home Loans are now only offering uncompetitive rates. Under Island law, lenders must honour their contracts with borrowers, so that if Islanders have signed for a 25-year term, for example, the lender must not renege on that agreement.
Jersey Home Loans’ parent building society, Kent Reliance, said they had taken the decision to close the doors to new customers partly because of the effects of the credit crunch. However, they also blame the States for not allowing Jersey residents to use their savings products. Deposit-taking licences are granted only to the world’s top 500 banks.
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The full story in today’s JEP goes on to quote the Kent Reliance CEO as saying that the States policy of only allowing the top 500 banks into the Island is flawed because the financial institutions that are most in trouble are in the top 500. Then the JFSC Director is quoted as saying that “no top 500 banks in Jersey had failed.” Do HBOS and Lloyds TSB count as two of the banks most in trouble? Surely they’re in the top 500, and surely they operate in Jersey. Strictly speaking they haven’t failed but then that wasn’t the point.
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Could anybody tell me if fixed rate agreements will be honoured? It is clear from the article that the actual loan will be honoured but less clear as to whether fixed rates will hold true. Can anybody help?
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Tim. There shouldn’t be any problem for the duration of the fixed rate period but after that you would revert to the variable rate and may not be offered a rate which is acceptable
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Surely the Jersey public deserve better than this? Although an independent body the JFSC’s key purpose is to maintain Jersey’s position as an international finance centre by safeguarding the island’s economy, reputation, residents and countering financial crime.
I suggest that by taking such a black and white approach in the times that we are experiencing the JFSC is not meeting its key purpose.
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I think the main issue many borrowers may face in the future will lie with available interest rates. As their ‘commercially reasonable’ fixed rates expire naturally, Jersey Home Loans is unlikely to be providing equally attractive new rates (although MPC rate cuts may make up some of the difference). Other banks do not share JHLs relaxed lending criteria which may come as a shock to some borrowers who would wish to move.
The top 500 banks only policy does seem flawed, particularly as some headline banks have had significant problems recently. The UK Government has made it quite clear that UK banks will not be allowed to fail – perhaps we ought to extend Jerseys rules to accept any UK bank or top 500 International bank?
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When are the states going to realise that JHL made owning a home a possibility for so many islanders over the last few years. Surely, the fact that they provide mortgage to 25% of Jersey home-owners is enough to let them take deposits in the Island which will obviously help their own internal risk requirements. Whoever reads this and has some say, please do whatever possible to ensure that JHL is able to operate in a commercially viable way in Jersey again. They have helped us out, now it is the government’s turn to do the same. Otherwise the consequences for those who have worked hard to buy a home could be unimaginable. The whole world is in this financial crisis together and Jersey is joining it pretty quickly due to the changes JHL have made (them pulling out has probably made more difference to the housing market then anything). In order to solve things here and everywhere lenders, homeowners and governments have to work together now more then ever.
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Its about time. Property is beyond the average earner and if it forces prices down who cares?
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Is there a way for the Jersey States to either acquire or maybe ‘nationalise’ Jersey Home Loans’ Mortgage book?
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I doubt Jersey could afford the risk of taking on the Jersey Home Loans’ mortgage book.
It would be fairly safe debt to acquire but the States would have to raise something like £750M to buy it.
It would also create the peculiar situation that the States would hold one mortgage in four in the island and the other banks might not like that.
And what would the States do after that? The biggest part of the problem is that JHL is not prepared to lend any more money in the island. The States could definitely borrow quite cheaply but would they be justified in doing so to issue new mortgages?
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I have a JHL loan expiring in Dec. I have received their offer and as expected the rates are uncompetive and a large increase on the current fixed rate.
PS- I agree wholly that JHL should be allowed to take deposits when they have made so many people’s dreams of owning a home possible, including myself, only to be shunned by beauracy. Isn’t it about time the States finally did something for its residents and 25% of Jersey home owners is a large piece.
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Sara – “Who cares” is a pathetic response to the fact that people may be paying over the odds for there home loan repayments after saving to buy a place. Do any of your friends, family colleagues not own their own home?
One day it maybe you in this situation.. then you may not be quite so harsh.
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JHL encapsulates the mortgage conundrum. As so many contributors have noted, JHL have offered some of the most generous lending terms both in terms of rates and salary multiples. This has allowed many more people to purchase homes than would otherwise be the case. HOWEVER, should Jersey hit the likely financial slowdown and house prices fall, there is a serious chance of negative equity and in the event of unemployment, repossesions. At that point the balance sheet of JHL would come under significant pressure. In the event that they failed, would anyone thank the JFSC for granting them permission to be a deposit taker when the Island Depositor Protection Scheme (the taxpayer) has to pick up the tab.
Unpalateable though it is, it is highly possible that JHL helped people achieve the dream of home ownership who are not realistically in a position to maintain that dream. Home ownership is something we all aspire to but financially may be beyond many Islanders and the sooner we accept that, the sooner we get to a more rational housing market both in terms of prices and the mix between home ownership and rental
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That’s pretty much it Geno. You only have to look to the UK to see what has happened to the lenders their that were willing to be the most “flexible” and provided the bulk of the buy-to-flip and liar loans – they have had to be nationalised.
Walker has given a political guarantee of all residents deposits. What no one seems to have asked is why this should be unlimited. The UK limit of £35k covered 96% of depositors in full. The increase to £50k only added an extra 2% to make 98% of depositors covered in full. Residents deposits in Jersey were reported as £10 billion at the time ! By my reckoning the vast majority of that money must be from a very small number of very very wealthy individuals with tens if not hundreds of millions deposited. Why on Earth is everything Jersey has being gambled like this ? A limit similar to the UK would cover the vast majority of Islanders lucky enough to have savings.
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Most people can and will afford the ongoing repayments, even if it is a bit of a struggle. After the Banking crisis, even those with JHL will be in a better situation as they own their home and live therefore the rest of their life. This is the reason most people buy with JHL, not as an investment.
Fiish – as long as you keep up your repayments, you have been able to take the most of a one-off lending situation. Just ensure whatever happens you come through this… even in a year’s time the world will look a bit rosyier!
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