News

Property sales are down by 42% since 2022

The House Price Index Report for the second quarter of 2023 (the "Report") from Statistics Jersey was published on 17 August 2023 and confirmed that the number of properties being sold in Jersey has dropped by 42% since Q2 of 2022.

Whilst a 42% drop is significant, the true figure could be much higher. 45% of the properties sold in Q2 were in new build developments, where the buyers usually sign a purchase contract before the development has been built. If the new build sales were removed from the statistics, the number of properties sold would drop by 62% year-on-year.

The surge in house prices has ended

In general, house prices have levelled off but have not yet fallen off a cliff. The Report confirmed that there has been an overall reduction of 1% in the market and the average house price has dropped by 4% since the peak of Q3 of 2022. This is the first decrease since Q3 of 2016.

That said, the number of new build apartments being sold in Q2 may have artificially increased the average price of apartments as, anecdotally, there is evidence to suggest that prices have fallen. Further price reductions are widely anticipated, as a result of interest rates remaining relatively high.

Is a price correction necessary?

After several years of significant house price increases at rates that greatly exceeded wage growth, it is arguable that a price correction was necessary.

Between 2020 and 2022 the median price of a three-bed house soared from £630,000 to £835,000, a rise of almost 33%. During the same period, wage inflation remained modest by comparison, leading to speculation that Jersey was in a housing bubble. If there was a bubble, the increase in interest rates has put a pin in it.

It is arguable that a period of cooling off will be necessary in order to return to a more sustainable housing market. However, for many islanders, housing will remain unaffordable in the short term unless they see a fall in interest rates or house prices.

Mortgage affordability is the greatest challenge

A lack of mortgage affordability is the key factor driving down the number of transactions. Whereas a buyer with a 2% mortgage of £500,000 might have incurred monthly payments of around £2,000 last year, today (at over 6%) mortgage payments on the same loan could cost around £3,500 per month.

With further interest rate rises likely, affordability is likely to get worse, before it gets better.

Fixed term deals are expiring

As many islanders have stretched their finances to purchase their homes, often taking advantage of the availability of low-cost credit, the increase in interest rates is causing difficulty for homeowners who are coming to the end of their fixed term mortgages.

Many islanders will see their monthly payments increase by several thousand pounds when their current deal comes to an end. If homeowners are concerned about their ability to service their mortgages at the higher rate, then they should get in touch with their lender at the earliest opportunity.

The buy-to-let market has stalled

Since the Government introduced an additional 3% levy on second homes, the investor market in Jersey has slowed significantly. The percentage of buy-to-let sales dropped from 36% to 28% and, when the new build developments are removed from the statistics, the drop could be much higher.

Whereas the stamp duty payable on a £500,000 apartment would be £8,000 for an occupier, a buy-to-let investor would have to pay £23,110. This means that, for many potential investors, the financial returns are no longer viable.

Are further price reductions coming?

It is widely expected that further house price reductions will follow, at least until interest rates return to a level that makes mortgages more affordable. In the absence of low-cost credit, competition amongst buyers has been greatly reduced and, in the short term at least, we are moving from a seller's market to a buyer's market.