Property market ‘slowing faster and further than expected’

The comment follows the Q1 2023 residential property prices bulletin, which found that the mix adjusted average purchase price for the local market properties had dropped by nearly 4% in the first quarter to £613,942.

The number of properties sold also dropped by nearly 70 to 113 during the quarter.

Mr Hemans said it was difficult and risky to draw conclusions from one quarter in isolation.

‘[But] the latest quarterly figures are somewhat concerning because they indicate the local property market is slowing faster and further than expected,’ he said.

‘This is evidenced by the lowest number of transactions in at least 25 years and also by house prices starting to fall.

‘These figures may, however, reflect the aftershocks of the UK’s poorly received mini-budget at the end of September 2022. They will certainly have been affected by the continuing increase in the cost of borrowing, which may rise further still.’

The mini budget saw mortgage interest rates rise sharply and inflation balloon. Mortgage interest rates rose from about 2% to 6% almost overnight in September in the wake of the mini budget.

Since then rates have stabilised at between 5% and 6%.

Inflation has continued to rise, with Guernsey’s RPI inflation sitting at 8.3% over the year ending March 2023.

Last week the Bank of England raised its base interest rate to 4.5% in a bid to bring inflation under control.

Mr Hemans said it was safer and more meaningful to look at rolling four-quarter averages for a clearer picture on the property market.

‘On this basis, local market property prices are still increasing by 14% year on year, although they are starting to slow,’ he said.

‘Transaction volumes are definitely slowing, falling by more than 25% year on year. Volumes are lower across every price level. Meanwhile, open market prices have risen by 21% year on year, but transaction volumes have also decreased by 36%.’

He said that the latest figures indicated the market might be at a turning point.

‘The Q2 2023 data will be critical in understanding whether Q1 was just an anomaly, or the start of sustained weakness,’ he said.

‘Most of the indicators in the bulletin predict a softer period for the Guernsey property market.

‘Affordability remains stretched and exceeds any level recorded in the last decade. It is taking longer to sell a property than a year ago. The discount sellers are having to accept is steepening, reaching 7% versus 3% a year ago.’

He said overall the latest figures painted a picture of a weakening market.

‘We are likely to see further declines in transactions and price growth this year.’

With the rental market, Mr Hemans said that the four-quarter rolling average was continuing to slow, increasing by 8% year-on-year.

Rental prices are rising more slowly than inflation and affordability has stabilised, he added, but they were still elevated, which made it more difficult to attract key workers.