Jersey Property Market Update
Wednesday, 14 January 2009
The States have come up with various measures to galvanise the market.
There has been a recent slowing of the property market in Jersey. The States have come up with various measures to take effect from the start of this year which are intended to galvanise the market.
The time a person needs to be resident in Jersey before being eligible to purchase most housing is set at present at 12 years. There is some suggestion that this will be decreased to ten years in order to introduce more potential purchasers to the market, although this is currently only a proposal and no decision has been reached.
From January 2009, purchasers of property qualifying as first-time buyers, who are purchasing property up to the value of £400k, will pay no stamp duty on the first £300k of the value. They will pay £1 stamp duty per £100 or part of £100 of the value between £300,000 and £400k. The stamp duty payable on borrowings will be similar - nil up to £300k, and 25p per £100 or part thereof between £300k and £400k. Under the provisions of the new Taxation (Land Transactions) (Jersey) Law 200-, which is expected to come into force in early 2009, a tax equivalent to the value of stamp duty will be levied on all purchases and creations of security interest over shares, where the shares confer exclusive rights of occupation of real property in Jersey. The same first-time-buyer exemptions and reductions will apply.
Further to this stamp duty reduction, the Jersey Homebuy scheme should come into effect in 2009. This scheme entitles qualifying purchasers to buy a new home at 65% of the market value. The scheme has run into teething trouble as it seems there are very few potential purchasers that fit the strict criteria for qualification, and a purchaser of a Jersey Homebuy property would not retain first-time-buyer status. There has been a recent ministerial decision extending the criteria to include those who have previously owned by share transfer or flying freehold - this decision does not seem to have been publicised!
It is hoped that these measures will cause the market to pick up. The present slowdown is largely due to the lack of availability of credit for first-time buyers. In recent years the market has been dominated by one lender which offered higher salary multiples and loan-to values than established banks, and would lend to those who might have been turned down by other lenders. This enabled a great deal more people who other wise would not have been able to buy property to get onto the ladder. This effect may have contributed significantly to the sharp increases in the price of property over the last few years, as there were more potential purchasers for each property.
Around the middle of last year, the main lender stopped offering new mortgage deals, Anyone coming to the end of a fixed rate mortgage deal has no option but to be transferred to the standard variable rate which is over 7%. This has led to an unfortunate situation: firstly, the volume of first-time buyers that has recently been seen in the marketplace has decreased, as the potential buyers have to conform to the tighter conditions of the longer-established lenders, meaning that less money can be borrowed and a lower loan-to value is acceptable. As the price of property has shot up due to the relaxed lending criteria followed until this year, few first-time buyers have the necessary deposit. This has led to chains of property purchases building up, since the lowest-value property at the bottom of the chain cannot be sold.
Secondly, those that purchased with a low fixed-rate mortgage in the last few years are coming to the end of their fixed-rate period. Many are finding it difficult to refinance, as the terms on which they initially borrowed are not acceptable to banks currently lending, and are finding it difficult to repay on the high variable rate to which they have been transferred. In a catch-22, they cannot sell the property on as there are no lenders willing to finance potential purchasers.
As the problems are largely with getting together sufficient deposit monies, the stamp duty reductions should go some way to helping first time buyers. By way of illustration, in 2008 a first-time buyer purchasing for £400k with a 90% mortgage of £360k would not have benefited from reduced stamp duty, and would have had to pay the full stamp of £6070 on the purchase and £1850 on the borrowing. In 2009 the same purchase and borrowing would elicit stamp duty of £1000 and £150 respectively - a saving of £6870.
It would seem that the way to attract first-time buyers back to the market is to reduce the initial outlay at the time of purchase, or, in order to balance the needs of the borrower and lender, explore products which would allow a reduced payment without reducing the interest rate available, for example by providing loans that are interest-only for the first couple of years, and switching automatically to a capital repayment product after a period of time.
Paul Scally, Le Gallais & Luce
