Will the new buyers be able to afford property in Jersey? With the combination and inflated prices and high-interest rates, their buying capacity will be significantly constrained. In 2021, out of 1665 transactions, almost 600 were funded by loans at above 70% LTV, including above approx. 200 loans in 80-90% and above 90% LTV brackets.
It is unlikely to have this category of buyers be active at the interest rates doubled and soon expected to be tripled compared to just months ago,
This removes about 30% of the buyers, likely a large portion of Jersey professional workers, from the market at the time when the new developments are arriving and slowly, but steadily getting into the market.
The shift in market balance and significant decline in demand has started weighing on the prices. Agents are having difficulties to price the properties opportunistically. We observed cases where opportunistically priced properties were repriced by -10% in a matter of weeks.
The next step, we expect is the new equilibrium price, which may take longer to adjust, however with the clear direction of the BoE to limit the credit in the economy and the sector, we expect a noticeable correction.
Our discussion with agents shows that the sellers are easily willing to accept about a 5% cut from the asking price. This is in addition to more “sensible” asking prices compared to June/July. We think this tendency will continue as the information about the market decline spreads more widely in the market to the point where the properties become generally affordable for the intended buyers of given property types (at least in real terms).
Pictured is a snip from the Jersey House Price Index Report for 2021. As shown, the property price index, which reflects the average price changes for Jersey transactions went down in 2011 to recover only about 5 years later. This snip will probably be the best answer to the “Jersey property prices never go down” mantra of real estate agents.
The post-crisis data also is of note. The prices were flat as the BoE base rate was reduced from 5.5% in July 2007 to 0.5% in March 2009. Currently, the BoE base rate is increasing from 0.1% earlier in the year to 2.25% at the time of writing and is widely expected to exceed 5% by Spring 2023, meaning that the peaked prices of the recent months are not sustainable.
