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Buying a house in Jersey remains popular. House prices have continued to rise to all-time highs – in 2011, the mean price of a four-bedroom property sat at £697,000. Ten years later, in 2021, mean house prices sat at £1,256,000 – an increase of 80%.
One of the main drivers of house price rises has been the shortage of housing stock on the island in recent years. But is this coming to an end? And what can we expect next in terms of property prices and demand in the coming months, especially given the rising interest rate environment and recessionary fears?
Given that for the past forty years, the Jersey house price market has been on an upward inclination, you'll be hard-pressed to find anyone who believes that the house prices on the island will decline in the long term. That said, while the undeniable trend over the past decades is that house prices have been on the rise, many experts in the property market will acknowledge that there have been intermittent dips in Jersey property valuations. At certain points over the past decades, house prices have dropped slightly and then picked back up again, and we may see something similar over the next few months, although we don't expect to see a 'crash' or bubble burst scenario.
In the past twelve months, many estate agents have reported that houses were not reaching the open market as they had 'books' of people waiting in their wings to acquire property.
With interest rates on the rise as we hit a challenging economic period, we will likely see something of a slowdown in the market. Whenever mortgage holders fixed rates expire, we know that it allows people to take stock of their current position and consider what they will do next. In challenging economies, people move more cautiously, assess their options more carefully, and sometimes take longer to make decisions as they weigh their options from every angle.
Even if the homeowner acquired the property in the last two years, most mortgage holders will have some form of equity locked into the property. This gives people some leeway and options, and looking forward over the next few months, we expect to see a number of people:
Due to the recent rise in interest rates, we've heard of several cases where investors placed deposits off-plan on new developments and lost their fixed rate options. This has been due to several completions being pushed back, caused mainly by the COVID-19 pandemic and Brexit.
We’ve also recently seen some cases where buy-to-let investors are marketing their properties with a view to selling them before the developers has even completed the build. Here, the investors put down deposits off-plan around 3-4 years ago, and the projects are due to be completed soon. However, the investors are effectively looking to flip the property without ever renting it out. The uplift in value of the property and increasing interest rates are driving the trend.
Interest rates are obviously a massive consideration for all players in the property market, from lenders to borrowers. Banks were previously fixing rates at around 3%, but these are now being re-priced. Rates of more than 6% are now standard in most cases, although some lenders can offer slightly more comptitive rates - but only by a little.
Higher rates are leaving many investors needing to put in more of a deposit to optimise the financing deal or make it worthwhile at all from a cost perspective. In the lowest interest rate environment of the past couple of years, LTV was in the region of 70-80%. Today, LTV needs to sit at around 40-50% to make a viable return for investors. However, many investors don't want – or can't – put in the more significant initial commitment needed to purchase in the first place.
It will be an interesting twelve months in this market. We wonder if less competition and hesitation from investors will open up the market to many local first-time buyers who desperately want to get onto the property ladder on an island that is becoming increasingly unaffordable to them.
Locate Jersey and High-Value Residencies have again been on the agenda for discussion by local politicians and the media in recent weeks.
Certain politicians across the political spectrum have questioned the 'value' of such residencies to the island. However, the general perception from many people is that the 2 (1) (E) status is very beneficial and important to the island. Jersey has a stellar regulatory and legal reputation, and the residency scheme – which is very carefully managed – has garnered none of the negative press that other European residency schemes have.
2021 statistics show that over £10.7m was paid in stamp duty alone from these individuals, along with £145m of property sales. However, the overall benefits of the scheme to Jersey are about more than just property sales and stamp duty. To qualify for residency, individuals also have to bring a business to Jersey, leading to more employment on the island, given 85% also have 'Entitled' status and many hire local talent. Overall, we believe that High-Value residences certainly pull their weight in benefits for the island, especially as it appears Jersey is attracting a different type of HNWI. Many of these now seem to be much younger individuals bringing families with them who are subsequently engaging more in island life.
Enness is global debt advisory firm. Our Jersey team specialises in arranging high-value mortgages and property finance for individuals with complex or unusual financing requirements. We can arrange mortgages in Jersey, the UK, Europe and in other prime international locations. As well as residential mortgages, we broker high-value buy-to-let mortgages, commercial finance, Jersey mortgages for non-residents and bridging finance.