Could the 'bank of mum and dad' be the most important lender in Jersey?

Wednesday 15 March 2023

A local lawyer with more than 30 years' experience has shared his view on the social impact of rocketing house prices in Jersey.

Philip Syvret, a Partner at Benest & Syvret who has advised on the legal structures for some of the island's largest housing developments, had this to say...

Every time I advise on a property purchase I am required to look back at the history of the property, principally to check the boundaries and the rights and duties that have accumulated in the property’s history over the years.

My eyes however are often drawn to the price for which the property has sold over the last few decades.

Last week I was looking at a property on what was a social housing development in St. Brelade, first constructed in the 1960s. When its first owner sold and moved on in 1974 he sold the property for £14,000.00. In 1990 it changed hands again, then for £90,000.00. By the year 2000 it was sold for £208,000.00. Somewhat remarkably at the end of last year it sold for a total of £795,000.00.

Pictured: "My eyes however are often drawn to the price for which the property has sold over the last few decades..."

Whilst I accept that the property has been improved and extended, the basic footprint and layout is much the same as it was in 1974.  It has however, seen an eyewatering increase of over 5,000% in value in the 50 or so years since it was built.

There can be no doubt that the trajectory of Jersey house prices has been remarkable.  If one stands back from the detailed statistics, broadly speaking, house prices have doubled every ten years.  Sometimes prices have levelled out for a few years and then seen a dramatic spike, as in the last three years or so, which have contributed to that doubling.

This little exercise on the price of a simple St. Brelade property made me reflect on the affordability of Jersey property and the large volume of gifting or loans that we are seeing from what is often termed “the Bank of Mum and Dad.” Previous generations in Jersey have accumulated capital, often from the dramatic rise in property values and are now lending that forward to the younger generations of their family.

These days all lawyers are required to focus very carefully on the source of funds for a transaction.  We now know with intimate detail where every last penny for a property purchase is coming from.  It has become clear in recent years that the Bank of Mum and Dad is one of the most important of lenders in the Island, whilst perhaps not from a total monetary value, but at least by numbers of transactions.

Pictured: A person looking to buy solo a reasonable one-bedroom or even a two-bedroom flat with parking, will now need somewhere between £50,000.00 and £60,000.00 in cash.

With an average mean full-time salary in Jersey at a little over £44,000.00, and with the salary of a first-time buyer in their early or mid-twenties undoubtedly somewhat less than that, that volume of parental assistance is perhaps unsurprising.  

A person looking to buy solo a reasonable one-bedroom or even a two-bedroom flat with parking, will now need somewhere between £50,000.00 and £60,000.00 in cash to pay a ten percent deposit and related costs of buying.  Expressed as a multiple of net salary for a youngster setting out, that is almost impossible.  The prospect of buying a three-bedroom family home on its own plot, as that buyer of the St. Brelade house did in 1974, would be almost an impossible dream. 

Having family who are both able and willing to give financial support their youngest generation gives those first-time buyers a significant advantage.  The higher the value of the deposit, the more preferential the interest rate on a mortgage that can be achieved.  The recent sharp raises in mortgage rates has made this factor all the more important.  House prices may have been high relative to incomes in recent years, but low interest rates kept mortgage payments relatively affordable, even for those borrowing large amounts.  

Pictured: The higher the value of the deposit, the more preferential the interest rate on a mortgage that can be achieved.

The challenge has not been, insofar as I can see, paying the monthly payments.  Instead it has been getting hold of the deposit.  Ironically with mortgage rates going up, those two factors have combined.  The higher deposit available, the better the mortgage rates that will be available. The need for a significant deposit with help from Mum and Dad has become all the more important.  

There is of course an elephant in the room here.  For an inter-generational gift to be made, Mum and Dad or family need to be in a position to advance funds.  It came to mind that we are perhaps seeing as a consequence an inequality gap being created where those with prior family wealth are the only ones who can truly have aspirations for Jersey property ownership.  

Whilst there are shared equity schemes in respect of certain publicly funded developments, there is no such scheme supporting young buyers in the open market.

There are of course subsidiary advantages in having a family who can contribute to deposit funds.  Receiving wealth earlier in life allows a property investment to be made earlier and thus a longer time to enjoy the growth in value like the owners of that property in St Brelade saw.  

Those who don’t have the benefit of family wealth that can be passed down between generations during lifetimes rather than by inheritance, therefore see yet another disadvantage.  

Pictured: "I see that as government’s duty to the younger members of its community, rather than hoping that everyone has a friendly Bank of Mum and Dad."

Equally having that extra £10,000 to pay for a higher deposit puts that slightly better property within reach, meaning better family facilities and a better start in life for children. Again, my concerns as to inequality within our Island community arose.  

There are of course positive aspects to the increasing importance of the Bank of Mum and Dad. It may be that it reasserts the importance of the family as a social group.  Children will need to live longer with their parents to save a deposit.  Equally the parents may say “we will assist you, but in turn this is so you can stay in the Island and assist us later in life”. From a social point of view, it is an interesting mix of interactions.   

If government are genuine in their desire to address such concerns, then the focus cannot solely be on constructing large volumes of social housing apartments in the hope that increased supply will reduce prices. Equally tinkering with the supply chain of homes by walloping buy-to-let investors with huge stamp duty rises is not the way forward.   

Neither of those strategies will genuinely address the inequality that those who don’t have the backup of Mum and Dad suffer. A sustainable shared equity scheme for all properties, not just States backed entities, is one that screams for attention. I see that as government’s duty to the younger members of its community, rather than hoping that everyone has a friendly Bank of Mum and Dad.