JNBS links surge in loan demand to mortgage rivalry
The mortgage sector is seeing record loan demand in recent times, arising from the latest cuts in interest rates, says a top lender.
Jamaica National Building Society's (JNBS) general manager Earl Jarrett said his company recorded loan origination of J$800 million in one four-week period, following the lowering of rates to 9.4 per cent in early March.
JNBS is the largest private lender with a J$41-billion portfolio as at December 31, 2011, but it was not the leader in the mortgage wars.
The rivalry was truly ignited in early March when the largest bank in Jamaica, National Commercial Bank, entered the residential market as a low-price leader with a mortgage rate of 9.5 per cent.
JNBS immediately countered with 9.4 per cent, followed by Victoria Mutual Building Society with 9.39 per cent. The latter two offers are time-limited, however, and will expire at the end of August.
Lenders have lowered rates on expectations that it will lead to more robust growth in business, more akin to 2007 when mortgage sales grew 30 per cent industrywide, compared to 2011 when growth was an anaemic three per cent.
While addressing a Realtors Association of Jamaica workshop in Kingston last Thursday, Jarrett said the surge in loan origination was the best seen in two years, adding that the market was benefitting from investors who were now seeing the mortgage market as a better opportunity than government securities.
He nevertheless cautioned lenders to screen the quality of loans being added to their books.
Mortgage origination refers to the written loan agreement. The next step is registration of a lien against the property being mortgaged, and then loan disbursals.
"We have been seeing over recent times, the entry of these players which see the mortgage market as offering a better return than the six per cent offered by the Government of Jamaica," said Jarrett, who also said he expected more players to enter the mortgage market as a result.
"As our economy becomes more normalised, we will see more players entering the marketplace and there will be greater options offered and greater customer care," he said.
"The 9.4 per cent mortgage rate is a direct result of the greater competition. But the one caution is that we always be mindful of risk and ensure that we put quality assets on our books, because we can ill afford for anything to go wrong."
Jarrett noted that the problems in delinquent loans seen since December 2008 were a lesson for lenders and the Government in cyclical crisis management.
"The evidence remains visible for all to see that there are many construction projects that came to a halt or became uncompleted projects, and we can see them around Kingston, particularly in the middle- and higher-income categories," he said.
He said areas such as Manchester, St Elizabeth, Clarendon, St Ann and St James faced the brunt of the job losses; and consequently were responsible for the highest level of loan losses by mortgage lenders when salaries dried up.
A quick review of the statistics from JNBS, he said, showed loan arrears increased due to loss of jobs, declining income, and marriage disputes, among other factors.
"In fact, one survey we did immediately after the collapse of the alternative investment schemes, indicated that marital issues accounted for some eight per cent of the loan arrears we have dealt with," Jarrett said.
Loan arrears that were performing at three-four per cent pre-crisis, rose as high seven per cent for JNBS. For the industry, arrears got as high as 10 per cent of loan portfolios.
"We are encouraging the Government to look at ways to stimulate growth in our sector," Jarrett said.
"I know there are plans to increase the levels of support from the mortgage insurance fund that exists at the Jamaica Mortgage Bank to enable firms like mine to lend even higher percentages of the value of the home that is for sale - with the assurance that there is some balance in the mortgage insurance fund to support us. I encourage all of us to lobby hard for those changes to be made, so that we can see greater levels of financing being made available, to ensure that real estate sales continue to increase."