By Robert Surcouf
WITH a change in government and a new Housing Minister creating a “Housing Emergency Taskforce” at the outset of his tenure, it was interesting to see what was going to happen with the proposed equity scheme that the previous government were close to launching before the vote of no confidence at the start of the year.
Thankfully Deputy Sam Mézec, the new Housing Minister, who through Scrutiny I am sure would have been aware of much of the work being undertaken, has launched this initiative with the initial £10 million funding and in interviews has indicated a hope that further money would be found to allow more people to benefit from the scheme.
I read the readily available information for the scheme and was impressed at the way it has been developed to support those who are not quite able to fund a purchase privately. Those lucky enough to be chosen will need a 5% deposit for a pre-owned property that is suitable for their needs. The scheme allows first-time buyers to fund up to 40% of the purchase price by way of an interest-free shared-equity loan. When the property is sold, then the amount of the loan repayment to Andium will be the same proportion of the then market value. If the value of the property has gone up, then Andium will get that proportion of the profit. If the value reduces, then the amount to be repaid will fall. The home owner will only benefit from their proportion of any equity rise, but in return they will not have been paying back interest or capital during their period of ownership. This has to be quite an attractive option for first-time buyers.
A number of commercial lenders have agreed to provide the private mortgage element that will bear interest. In light of various commentators suggesting a “Jersey Premium” exists – as the level of interest rates being charged locally is materially higher than in the UK due to the perceived local risk – how are the commercial loans being priced? The shared-equity loan is taking a material level of the downside risk in a property market slump reducing the risk to the bank. This risk reduction should be built into the commercial pricing to help keep the rates on the lower side. Is that going to be the case?
The scheme guidance makes provision for adjustments to the profit calculation where there have been, over time, structural alternations such as a loft conversions or an extensions, so that the owner funding the works should benefit from the positive impact of these changes. It is less clear if they would benefit from other major enhancements such as replacing kitchens, wiring, plumbing and bathroom upgrades. This work, which some talented home owners might do themselves, would enhance the property’s value; but would much of it merely fall into requiring maintenance? This is a point that will need to be carefully considered, especially when it comes to properties in need of modernisation.
The guidance makes reference to funding purchases that are suitable for the purchasers’ needs, so the number of bedrooms is going to be dependent on family size. This is where I see the greatest challenge for, say, a couple looking to buy their first home. They take advantage of the scheme and are allowed to buy a one- or two-bedroom home. But once they want to start a family, they would need a second or third bedroom. Could they easily move on?
They are no longer first-time buyers, so the scheme would not be available to them. Possibly up to 40% of the uplift in the value of their property would return to Andium, so they are likely to be unable to upgrade to a larger home unless their earning potential has materially increased. They once again face having to compromise having a family because of housing affordability; or they might have to sell up and go back into rented accommodation or leave the Island.
With this in mind, there has to be a decision by a prospective buyer who feels their only option to buy would be through such a scheme. When is the right time if it is a “one-time only” option?
Rolling out the First Step scheme is a good idea, but thought has to be given to how those lucky enough to benefit could then change home when the need arises. This might involve some form of long-term evolution of the loan facility to allow a roll over to another property, but in turn this would limit the funds available for other first-time buyers.
There is certainly much more still to be done, but this is a positive step to get a few more people on the property ladder and possibly getting the housing market moving again.
However, if this approach creates another uptick in prices, it will not help those looking to buy who are not lucky enough to be eligible or those who are eligible but are not chosen, as demand will currently far exceed the funding. I look forward to seeing what new ideas are brought to the Assembly by the Housing Minister, supported by his Housing Emergency Taskforce.
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Robert Surcouf comes from a Jersey farming family, though his mother was Spanish and moved to Jersey in the 1960s. He became an accountant and now specialises in risk and enterprise management. A father of two school-age children, he still helps organise and participates in local motorsport events and was one of the founding members of Better Way 2022 before the last election. The views expressed are his own.
