With the price of houses in Guernsey expected to continue to
fall, and the number of conveyancing transactions at its
lowest for years, now is the time for the island’s
government to intervene, says Ogier’s Guernsey property
partner Martyn Baudains.
Intervention could help stimulate the market, help first time
buyers get on the ladder and increase the amount of duty
received by the Guernsey coffers on property sales.
After a States of Guernsey meeting last September to consider
a joint report by two committees - Treasury and Resources and
Housing - on various schemes to assist first time buyers,
government agreed it would support the Guernsey Housing
Association’s (GHA) partial ownership scheme rather than
intervene in the housing market. In the longer term it
was agreed to review document duty and consider ways of
encouraging new lenders to operate on the island.
“Since then the most recent figures available show
States Local Market Residential Property Prices reflecting a
fall in the mixed adjusted average house price between Quarter
2 of 2012 and Quarter 4 of 2015 of about 9%,” said
Martyn.
“These figures are interesting because those involved in
the property market (estate agents, surveyors, developers and
lawyers) actually believe the fall in house prices is greater
than that reflected in the States quarterly bulletin –
and some believe that house prices may continue to
fall. In addition, the number of property transactions
has fallen to such a degree that the States are possibly
losing out on about £4 million of income each
year.”
It was announced recently that the ratio of earnings to house
prices in Guernsey is high, in fact as high as London.
Martyn poses the question: “So a fall in house prices
would be good, wouldn’t it?”
However he adds: “Not necessarily. A fall in house
prices will result in negative equity, which upsets the
housing market and disrupts the economy in general. If we
need a price adjustment it has to be a gradual process whereby
earnings are allowed to increase faster than house
prices. No economy will benefit from a crash in house
prices.”
High property prices and a smaller number of lenders is bad
news for individuals and couples trying to purchase their own
home but cannot because they are unable to raise the deposit
required by a bank.
“At the moment banks in Guernsey will lend a maximum of
90% of purchase price, meaning a couple buying a house at the
lower quartile (£295,688) will have to raise
approximately £40,000 towards their deposit and the
costs of buying the property (of which some £7,500 will
be duty and court fees). Ironically, saving such a sum is made
more difficult by the fact the couple are paying rent.
“It was acknowledged by the States last September that
the island could benefit from having more lenders. There
are fewer active lenders on the island than there has been for
a long time. The loss of the Co-Operative Bank and
Guernsey Home Loans left a gap in the market, and the
introduction by some banks of stricter lending criteria mean
that there is a lack of available credit in
Guernsey.”
Although the focus has been on the Guernsey Housing
Association’s scheme, it has limitations, says Martyn.
“Unfortunately, the GHA have no partial ownership units
available. The good news is that there are some GHA
developments in the pipeline, but even when those units become
available the GHA believe there will be a waiting list of some
200 applicants. The States could, through a change in
policies, release land for development of further partial
ownership units, but that will take time. Also, whilst
acknowledging that the GHA has an important role to play, why
put money into development of that number of partial ownership
sites when there are homes available but inaccessible in the
private sector?”
So what’s the solution? Martyn has some suggestions:
“If the States were to fund a first time buyers deposit
loan scheme for a trial period of say 6 months, using £3
million of funds, up to 100 first time buyers could be helped
into the private sector, so increasing the number of sales and
raising about £750,000 by way of document duty in the
process. The ripple effect could mean that the States
receive much more than that in the way of document duty. Such
an amount of funds, and the relatively small number of people
who are likely to benefit from such a scheme, is unlikely to
over-stimulate the market to bring about
inflation. Evidence of the success of such a scheme can
be found at our sister isle, Jersey, which ran a similar
scheme two years ago; their housing market is now experiencing
a very acceptable 2% a year increase in value.
“Can the States continue to do nothing for the private
sector?,” he asks.