Ashford W. Meikle, Staff ReporterLike the rest of the country, Prime Minister P.J. Patterson's announcement of a doubling in NHT's benefits last Wednesday caught building societies off guard. Patterson's revelation at Emanci-pation Park there is some irony there has been described as a classic Nicodemus moment.
But, even as the Building Societies Association of Jamaica (BSAJ) prepares to issue its official response to the Prime Minster's announcement this week, members worry some publicly, some privately that the new NHT mortgage benefits could negatively affect their businesses.
surprised
"Absolutely!" exclaimed a senior mortgage officer when Sunday Business asked whether the company was surprised by the news." The source, who requested anonymity, explained that she "was totally taken by surprise, totally surprised completely taken aback, especially coming less than 12 months after the benefits were increased."
"It seems to have been done with indecent haste [in light of Patterson's impending departure] and it's something which, historically, you expect to come out of the budget in April tied to a raft of tax measures," continued the executive.
According to the assistant vice-president for operations at the Victoria Mutual Building Society (VMBS), Gavin Lowe, while the society was aware that an increase was imminent, the amount announced was unexpected.
"Yes I sat there and I was surprised because as a business partner," he trailed off, before elaborating "it was in discussion from an operational end so even if they were to do any thing, I couldn't see them moving it up that much. I envisioned [the benefit] moving up another $500,000 say to $2 million. But the 100 per cent increase, it really took me by surprise."
However, Lowe insists that the revised amounts will benefit the consumer.
affordability
"It's going to make affordability better for more persons because the NHT rates are lower. It would allow people to buy things they could not afford before. In that sense it is going to be good for the first-time home owner, because where they had a cap before of $1.5 million it has now doubled to $3 million," he said.
The general manager of FirstCarib-bean International Building Society (FCIBS), Lenworth Tracey, agrees.
"If you were to ask the question is that a good or bad thing if it is affording Jamaicans a better opportunity to owning their own homes with less hassle, less stress and cost, it is a good thing," he told Sunday Business. Tracey goes even further, pointing to the macro-economic benefits.
"Anything that is going to support more Jamaicans getting their home is going to actually lead to supporting the economy the Jamaican society comes first and the economy will actually benefits if the society benefits. All of us the building societies, the banks all of us are going to benefit in the long run," he elaborated.
Industry personnel agree that the increased NHT benefits could see the building societies losing a share of the market.
mortgage provider of choice
"Based on average home prices [in new schemes] NHT has made itself the mortgage provider of choice. Look at the New Era homes. For a couple who can combine and get $6 million, what do you need us for? Where does that leave the rest of us," worried the source.
"Unless we have a lot more homes coming in at the 10 to 15 million-dollar region and I must tell you they are not building those homes now there really won't be any demand for [our] mortgages. I think you will see the demand for the traditional mortgage loans soften within the next six to twelve months," continued the anonymous executive.
At the VMBS where the average loan is $3 million Lowe says, "It is going to affect us. Loans that we would normally finance they (borrowers) will now be using NHT funds.
Tracey sees it differently. "It doesn't mean that I am losing that part of the $6.5 million market. I am only losing that part of the market for the people who can qualify for NHT funding." The average loan at FirstCaribbean is $6.5 million.
According to Tracey, "Obviously what's happening here is that we are going to be pushed to the higher end of the market. Of course we already cover the lower to higher end, but if it is that the NHT is lending at the lower rate we are not in direct competition with he National Housing Trust."
Both Lowe and Tracey point out that, in a rush to judgment, people sometimes forget that the NHT benefit is one-time benefit and that. Accordingly, there you have the second time purchaser who are going to purchase homes in $3 -- $6 million price range who do not qualify
But even while they may be faced with a fall-off in business- at least temporarily - don't expect building societies to immediately reduce their rates because of certain costs involved.
cheap funds
"I can't see where we could afford to reduce rates [now] bearing in mind those cost factors. If interest trends down, it might be a start," noted Lowe. As he explains, NHT funds are cheap since they source their funds via compulsory statutory deductions on which they pay no interest. And because of regulatory requirements, "one per cent of [building societies] deposits is sterilised and we earn no interest on that deposit. In addition we have to pay deposit insurance," explained Lowe.
