The Tribune

• CBB aims to expand access to residential mortgages

• Mortgage indemnity insurance no longer mandatory

• Financial institutions to adhere to debt service and LTV ratios

By Fay Simmons

Tribune Business Reporter

jsimmons@tribunemedia.net

The Central Bank of the Bahamas (CBB) has released new “relaxed” lending rules for residential mortgages.

The banking regulator removed the mortgage indemnity insurance requirement on residential mortgages, which should bring the minimum down-payment to 15 percent.

CBB noted that the change is not anticipated to have “significant impact” on personal lending it should reduce the costs associated with home ownership for qualified borrowers.

“The Central Bank of The Bahamas is relaxing the guidelines for domestic banks and credit unions on the minimum equity injection requirement for residential mortgages. While this is not anticipated to have a significant impact on personal lending, it should reduce the cost burden for suitably qualified borrowers and allow some additional individuals to qualify for credit,” the Central Bank said.

“With immediate effect, the mortgage indemnity insurance is removed from the Central Bank’s stipulation for borrowers to qualify for a reduced equity or down-payment amount on residential mortgages. In the absence of the insurance, the minimum down-payment for such mortgages was 15 percent.”

CBB explained that although financial institutions are responsible for setting their down-payment requirements, they must observe the borrower’s 50 percent debt service ratio unless restructuring or consolidating a debt for an individual that has exceeded that threshold.

It said: “Moreover, in line with the Central Bank’s relaxed rules for other personal lending, issued in August 2022, financial institutions may also vary or set lower down payment requirements for residential mortgages, in line with their internal frameworks for assessing and managing individual borrower risks.

“However, lending institutions are directed to observe that personal lending is still subject to the borrower’s total debt service ratio remaining within a prudent limit of 50 percent. The exceptions are debt restructurings and/ or consolidations for borrowers who are already indebted beyond this threshold, and for whom outstanding obligations are not increased as a result of the restructuring and/ or consolidations.”

Additionally, CBB advised financial institutions to “exercise continued prudence” with the loan – to value ratio when issuing residential mortgages.

It said: “Lending institutions are also directed to exercise continued prudence around the amount of credit extended as a percentage of the appraised valuation of the real estate, or the resulting loan-to-value (LTV)ratio. The LTV ratio also determines the risk-weighted treatment for mortgages when estimating banks’ capital adequacy.

“In particular, in accordance with The Bahamas Capital Regulations, 2022, residential real estate exposures are weighted at either 25 percent, 50 percent, or 100 percent, respectively, according to whether the LTV is less than or equal to 60 percent, between 60 and 80 percent, or exceeds 80 percent.”