Mortgage demand heads south but rates hold firm
Published:Friday | July 2, 2010 | 12:00 AM
Avia Collinder, Business Writer
The cost of debt has been trending down across the spectrum, but private mortgage lenders have so far refused to budge on rates, despite a plunge in new business that has set the industry back three years.
Building societies in 2009 wrote $10.9 billion in new mortgage loans, a 42 per cent drop from its most stellar year, 2008, when the sector wrote $18.8 billion in new business, and a return to 2006 levels.
"Yes, we have seen a reduction in demand, generally speaking," said Carlton Barclay, assistant general manager for finance, administration and planning, at Jamaica National Building Society (JNBS).
"Employment is not at the level that it was, (and) even the NHT has reported that contributions will be some $500 million less this year," he said.
But JNBS, the top player in the market, has no immediate plans to chase after business with rate cuts.
"Anytime the opportunity presents itself for cutting rates, we will," Barclay said, in response to Financial Gleaner questions on the prospects for rate cuts in light of current interest rate trajectory.
"It is a competitive market; we will have to cut rates if the market demands it," he said.
JNBS, which manages a mortgage portfolio of $39 billion to control 47 per cent of the market as at March 2010, according to central bank data, says its 13.75 per cent minimum rate is the lowest on the private market.
State-owned National Housing Trust sells its funds within a subsidised range of 1-7 per cent.
Victoria Mutual Building Society is advertising a residential mortgage rate of 13.99 per cent for "special savers" and a regular rate of 15.49 per cent. Residential construction loans are quoted at 24 per cent, with residential loans for land acquisition at 16.99 per cent.
Scotia Jamaica Building Society (SBJS) quotes a minimum home loan rate of 17 per cent on its website.
Trending down
But these building society rates are not new and have held for more than a year, while interest rates have been trending down - both on the policy front, with signal rates from the Bank of Jamaica now at 9.0 per cent on its open-market instrument, and inside the market with Treasury bill yields on the benchmark six-month bill now at 9.26 per cent, while the three-month bill has fallen to 8.52 per cent.
Judging from current marketing campaigns, building societies have been trying to revive their portfolios, but these financial institutions remain mum on what role rate cuts will play in enticing back borrowers.
"We have to ensure our savers' funds are protected," JNBS' Barclay said vaguely.
Equally guarded was an earlier response from SJBS.
"Generally, rate reductions are usually to the benefit of new mortgagors, however, for existing customers, at their request, we will invite them in for a discussion and work on an individual basis to discuss rate reductions," the company said in a response to Financial Gleaner queries.
While building societies have not budged on rates, they say they are making borrowing easier.
With a quoted 20 per cent rate since last year, FirstCaribbean Building Society is currently promoting up to September 30, a "no fee mortgage" which apparently involves the waiving
It has thrown in incentives, too, promising borrowers, "for a limited time", $150,000 towards legal costs as well as a preapproved credit card and a pre-endorsed revolving loan to cover property insurance and taxes.
SJBS' current marketing campaign focusses on encouraging customers to talk to the institution's representatives to secure home loan solutions.
But the invitation also seems intended for existing mortgagors whose loans have gone bad.
"We have seen increases in our delinquency rate for 2008 and 2009, however, we are unable to share any further details," a prepared statement from SJBS said.