Jersey Mortgage Market & Lending Update

Proposed Changes to Jersey’s High-Value Residency Scheme

Jersey has long been known for its particularly favourable high-value residency scheme. Eligible individuals or families can apply to move their fiscal residency to Jersey under the scheme, benefitting from favourable fiscal incentives which – under the old rules - include a minimum tax amount of £170,000. Under the new regulations, the minimum tax paid by a high-net-worth Jersey resident will sit at £250,000 per year. 

To be eligible, individuals must apply and be approved for a 2(1)(e) licence. Under the licence, individuals pay tax on their personal income in ‘tranches’:

• A rate of 20% is applied on the first £1.25 million personal income.
• A rate of 1% is then applied to any personal income above the £1.25 million threshold.
• A rate of 20% (as is standard in Jersey) is applied to any income from Jersey property or land ownership (i.e., rental income) either directly or through dividends paid out through a company that generates income from a Jersey land or property.

The changes to the 2(1)(e) licence regulations affect the minimum tax payable on personal income, with the minimum tax payable now set at £250,000 – up from the previous £170,000. To be eligible for the scheme, applicants must prove they have a minimum net worth of £10 million in assets that exclude the value of their primary residence. They will also be required to buy a property in Jersey for at least £3.5 million.

The recent change in the scheme will only affect new applicants. Those granted the 2(1)(e) license under the old minimum tax threshold will continue to pay the same minimum rate of £170,000. They also have the advantage of being able to purchase property for a lower amount than what is required under the new rules.

The changes to the 2(1)(e) licence eligibility criteria and contributions are designed to maintain the quality of applicants for the scheme and ensure that those that move to Jersey under the scheme donate a little more to the Jersey community through their contributions.  

How Jersey’s Schedule 2 of the Proceeds of Crime Law Update Will Affect Private Lending

Schedule 2 of Jersey’s Proceeds of Crime Law is related to anti-money laundering and the Proceeds of Crime legislation. Earlier this year, Jersey updated Schedule 2 to include more activities and operations than under the previous issuance. Any actions or processes that now fall in the scope of the updated Schedule 2 are subject to meet relevant anti-money laundering (AML), Combating the Financing of Terrorism (CFT) and Combating Proliferation Financing (CPF) reporting and obligations in Jersey. Schedule 2 was updated to ensure Jersey meets Financial Action Task Force (FATF) standards. 

Any companies that fall under the broader scope of Schedule 2 activities or regulations had until July 1 to meet the relevant requirements with the Jersey Financial Services Commission (JFSC). In some cases, this has been extended to the end of September. 

As part of the updates to Schedule 2, it has highlighted that private lenders have been within the scope of Schedule 2 since 2008, depending on certain circumstances. No single test determines if someone is lending as a ‘business’ (as defined in the law). However, where a person or entity is conducting lending as a business, the following considerations are expected:

• The loan transactions are frequent.
• The lending forms part of a commercial transaction or a broader commercial structure.
• Where security is granted.
• The loan is based on arms-length commercial terms with regular repayments and a set or indicative final date for repayment.
• Interest is paid on the loan.

This means that several private lenders will need to consider how they deploy their funds in future to ensure the legislation does not catch them. 

If you are unsure of your obligations under this law, please contact Gary Tumelty or one of the Jersey team, who will be able to guide you. 

Government Issues Consumer Credit Consultation 

Jersey’s government has issued a consumer credit consultation paper, inviting islanders to give feedback on proposed regulations relating to individual and small/medium enterprise borrowing from lenders that operate in Jersey. The government has drafted regulations which have been proposed to give more protection to borrowers. 

Under the proposed legislation, any lenders operating in Jersey must register with the JFSC. Furthermore, lenders must conduct an official assessment to ensure the borrower (corporate or an individual) can afford the loan. This would ensure that vulnerable borrowers or those not suited to take out a loan (or borrow the amount they are enquiring about) are not offered a loan they cannot afford by a Jersey lender. 

Under the proposed legislation, lenders operating in Jersey must also meet specific standards relating to various lending practices. The government is proposing these to create a more standard level of service between Jersey lenders and ensure more transparency in certain lending practices. This includes what lenders charge borrowers to set up a loan, what information they provide to prospective clients and borrowers, interest rates and cool-off periods. If passed, the proposed legislation would see lenders having their contracts with borrowers deemed unenforceable because they are unfair contractual terms to the borrower. If brought into force, the proposed legislation would cover any institutions that offer Jersey mortgages, Jersey store credit cards, hire purchase agreements, overdrafts, payday loans and small business loans up to £30,000. The regulations will cover lending activities in Jersey and companies that offer debt collection services, credit broking services, and credit advice.

Fixed Rate Mortgage Expiries on Jersey

When interest rates were at record lows, many Jersey-based mortgage holders took out fixed interest rate mortgages – usually two or five-year fixed rates, which were usually the most competitive products. Many of these products are expiring, and borrowers looking to refinance are carefully assessing their options. Jersey property tends to be more expensive than that on the UK mainland, so refinancing carefully to get the best deal in an interest rate-rising environment is essential. 

Overall, Jersey mortgage holders are taking stock of the mortgage market and carefully exploring all the options for refinancing. One advantage of Jersey’s property market is that homeowner equity has grown significantly, given the relatively steady increase in property valuations, which means borrowers can often refinance, considering this additional equity as a way to get the most competitive deal available. 

When it comes to mortgage products, there is no universal advice: what is best for each individual and the most competitive deal will depend on a borrower’s financial background, including assets, liquidity and any other debts, the mortgage amount, their plans for the property, income and so on. Personal preference will also play a part: in some cases, our clients prefer to take on a marginally more expensive but longer-term product. Opting for this option will ensure more predictable monthly payments, as opposed to a slightly cheaper but shorter option that may require refinancing at a higher rate later on. As always, provided you have tailored offers that are the best on the market to choose from and you understand your options, there is no right or wrong answer regarding what product you decide to refinance to when your fixed rate ends. The best option will always be what you are more comfortable with when you fully understand each offer you've received, and you can choose the best rates and terms available for your specific situation.