CONTACT PHILIP SYVRET
There is a quote which says that “a pessimist complains about the wind, the optimist expects it to change, but a realist simply adjusts the sails.”
There can be no doubt that the winds that have blown through the Jersey residential property market over the last few quarters have changed their direction. I sense however that the need for an attention-grabbing headline rather makes the positive news in the market disappear.
Let’s go back to September 2022. The turnover of residential properties at that time was spinning along with all the momentum that had gathered in the post-lockdown years. Interest rates remained at record lows and lending to fund that turnover was readily available.
The warning signs were, however, already there. The money pumped into the economy during lockdown, price rises in fuel and food because of the Ukraine invasion were already pushing inflation. Then Liz Truss got hold of the levers of power. Her ill-advised mini-budget collapsed trust in the UK’s reputation for budgetary control. The combined effect was the steady increases of base lending rate over the first three quarters of the year.
As a consequence, mortgage products disappeared and new products with rates significantly higher than we’ve seen over the last ten years came in replacement.
The UK was not alone in making ill-advised political decisions. The Jersey politicians continued to impose significant regulation on landlords reducing the appetite of buy-to-let purchasers. On 1st January 2023 they imposed a 3% stamp duty uplift on landlords looking to buy. Landlord purchases disappeared and chains of transactions could not be completed.
The JFSC then imposed significant restriction on Jersey private lenders. That source of short-term and ready finance was significantly curtailed just as commercial mortgage products became more difficult to obtain.
With those items setting the scene, if you read only the traditional media, you would be forgiven for thinking that there has been a total collapse of the residential property market. But that is not the case. Despite the pessimistic journalism, the realists have reset their sails.
Indeed, I include in the group of realists the Housing Minister and his advisers. Since the winds changed, we have seen the Government Plan lodged in September, proposing an increase in the first-time buyer stamp duty threshold to £700,000.
The Government also announced its “First Steps Scheme”, offering first-time buyers a deferred bond of up to 40% of the property value as a second charge on a property purchase. The initial funding provided is a total of £10m, more could be potentially available. That is a measured response to the slowing of the market, and is welcome assistance to first-time buyers.
The increased mortgage rates have meant that vendors have had to reduce their prices to ensure that their property is affordable. Those price adjustments invariably take some time to filter through but vendors are, I sense, now being realistic. The inflated prices which had become almost the norm in the years post-pandemic have been curbed.
That price adjustment however is simply a cyclical readjustment following a period of boom. There is no collapse in prices. I see no volume of distressed vendors or negative equity. Indeed, those moving upwards in the market have the benefit of carrying forward significant equity given the rise in property values that have been achieved over the last ten years or so. The present price adjustments do not seem to be significantly impacting those already in the market and moving on. The size of equity in the property being carried forward means that the more affordable mortgage products can be had.
In short, the Jersey property market has been resilient. Price adjustments over the short term are a normal part of the economic cycle. Whilst those market adjustments are in progress buyers have a strong negotiating position and a wider range of choice arising from the slowdown in turnover.
Thus, as we enter the final quarter of 2023 there is much to be positive about. Despite the global winds that have blown, the adjustment in availability and pricing of lending has been achieved without significant casualties. Inflation, for the time being, seems to be heading in the right direction. Mortgage product pricing seems to have stabilised.
As a consequence, transaction volumes are beginning to pick up and I anticipate that the market will once again generate a natural momentum as chains of sales and purchases are put together.
All told, I think the sails have been reset. With prices duly adjusted after a year of some uncertainty, it might time for buyers and sellers to set sail on the property market again.
Philip Syvret is one of the Island’s most experienced property lawyers. With over 30 years of experience he has seen the cyclical change of the property market over recent decades. He heads up the property team at Benest & Syvret.
To contact Philip, email on email@example.com or telephone 706670.