The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A major Bahamian residential housing developer yesterday disclosed it is “not having a party yet” over the Central Bank’s decision to relax mortgage lending stipulations.

Franon Wilson, Arawak Homes president, told Tribune Business he is in “wait and see” mode over how the commercial banks, credit unions and other formal lenders respond to the regulator’s move to eliminate the need for borrowers to take out mortgage indemnity insurance to qualify for a down payment of less than 15 percent.

Noting that institutions have to strike “a balance” between growing their assets, profits and loan portfolio, while at the same time securing depositor and shareholder monies, he added that some lenders are “only just getting back into the mortgage space” following the surge in delinquencies in the aftermath of the 2008-2009 financial crisis.

“Anything that reduces the cost of home ownership or the amount of money you need to come up with is a great thing,” Mr Wilson told this newspaper of the Central Bank’s action. “But to be honest with you I’m waiting to see the position the banks take because it’s their depositors’ money that they’re lending.

“I’m sure there’s a process they have to go through. Boards and credit committees have to meet. Once those meetings happen, hopefully we’ll some changes. Hopefully there are changes, and hopefully the changes have the intended effect. 

“Right now I’m holding back excitement. Banks and credit unions are responsible for other people’s monies, and they have to ensure people are able to pay back and the bank continues to grow. It’s a balance. They want to make sure more people own their home but have to be careful they don’t end up with a lot of delinquent loans,” the Arawak Homes chief added.

“Hopefully we will see some changes sooner rather than later. We’re not having a party yet. Right now this is still wait and see. Coming out of 2008-2009, some banks are just getting bank into the mortgage space. There’s some serious conversations that no doubt have to take place so that they lend for mortgages but under no circumstances increase their delinquent portfolio.”

Mr Wilson pointed to Bank of The Bahamas’ recent opening of a dedicated mortgage centre as “further proof that it is not only back in this space but going heavily in this space”. He added that all commercial banks “don’t want to get bitten again” so are taking their time to ease back into residential home lending and ensure borrowers are minimal risk and fully qualified.

The Central Bank adjustments come after mortgage loan approvals have slumped to their lowest level in four-and-a-half years, with almost one in four applications rejected because borrowers have a 50 percent debt service ratio.

Its full Lending Conditions Survey for the 2023 first half revealed that less than one third - or fewer than one of every three - out of a total 1,104 applicants were approved for a mortgage loan during the six months to end-June.

And survey data showed that the 32.2 percent approval ratio is the lowest since the 2019 first half, which represented a period prior to both Hurricane Dorian and the COVID-19 pandemic. The 52.6 percent and 52.7 percent mortgage approvals ratio for the 2019 first and second half, respectively, represent the high points of the past four-and-a-half years.

The approval rate slumped in the 2021 calendar second half, dropping from 51.5 percent for the first six months to 39.4 percent and continuing a steady downward slide ever since. While the economic fall-out from COVID is likely to be held at least partially responsible, the Central Bank has since relaxed its lending guidelines by allowing its bank licensees to extend credit worth up to 50 percent of a borrower’s income.

Previous guidelines have set this limit at 40-45 percent, but the regulator’s lending survey reveals that the reason more than one-third - or one in every three - of mortgage loan applications was rejected during the 2023 first half was because potential borrowers were still breaching the more generous 50 percent debt service ratio.

Using the Central Bank’s statistics, just 356 of the total 1,104 mortgage applications submitted during the 2023 first half were approved by its commercial bank licensees. This means that two-thirds, or 748, were rejected. Of that 748, some 33.6 percent or 251 were declined because the applicants’ debt service ratios would breach the 50 percent benchmark.

This would mean more than half their income would be going to servicing debt, placing their finances under stress especially if something went wrong. That 251 is equivalent to 22.7 percent of all 1,104 mortgage applications, which means close to one in every four submissions was dismissed because the potential borrowers/homeowners are already too heavily indebted.