Barbados is now experiencing a dive in the market for the first time in three years.
The Barbados Mortgage Finance Company (BMFC), specialists in mortgages for lower and middle income homeowners to a maximum $400 000, is observing a slump
in its figures for 2008.
Senior manager with the company, Waveney Nicholls attributes this to diverse reasons stretching across domestic, national and international planes.
"During the first quarter we have experienced about a 15 per cent reduction in the number of applications for mortgages and loans
for renovations and extensions, when compared with the same period for 2007," Nicholls told the SUNDAY SUN.
In fact this fall-off continued from the October to December 2007 quarter, where there were 48 applications for $11.7 million and 48 approved mortgages for $13.8 million.
At least half
These figures are at least half of what the company saw during the same period in 2006 where there were 91 applications valued at $17.8 million and 92 approved at $16.7 million.
Rey Royer and Vivien Croy of Royal Bank of Canada described that financial institution's turnover for the middle income range ($325 000 to $400 000) as "flat".
"We haven't been seeing an increase this year," Croy said.
In comparison to the same period in 2005 to 2006 they saw an increase in demand, where in 2006 figures reflected a 100 per cent increase, a demand that was sustained in 2007.
The reasons for this, Royer added, were the incentives and repayment options offered by Royal Bank, such as bi-weekly mortgage repayments.
Nicholls, on the other hand, spoke of the impact in the post-World Cup period:
"There has been the removal of the high demand for housing which existed in 2006 and 2007 with the hype for the World Cup activity . . . where there was also upgrading of homes and provision of additional accommodation for visitors."
Significant impact
She suggested the recent electoral period also had a significant impact on the market.
"It has been our observation over the years that there is the tendency for applicants to resist long-term borrowing until the administrative machinery of Government is functioning fully again," she indicated.
"In addition, there are housing-related incentives promised to homeowners and some applicants are waiting to benefit from these incentives under the new administration."
Housing developers and realtors concur with Nicholls on this, believing Barbadians are prudent planners when it comes to long-term investment.
Benjamin Niles, manager of Apex Construction, one of the major private providers of middle-income housing, said: "The uncertainty around the election affected the numbers. People were thinking, 'Let me wait and see what they're doing', but it is also a global issue," he emphasised.
Over the last six months, Apex has seen a reduction in the demand for houses "by at least one-and-a-half less [units] than for the same period last year," he said.
The developer compared the period with that just prior to the Cricket World Cup.
"There was a confidence . . . you go forward when you're confident. People had an outlook. There were opportunities, people were confident, so people were doing things."
He considered there was less of it now due to the influence of the global economy.
"That confidence is eroded because of global situations where the prices of oil and food are skyrocketing."
The BMFC's senior manager pointed to another reason for a decrease in mortgage demand: lack of supply for the middle market.
"The availability of new and existing properties in the market has reduced. The increasing cost of housing has resulted in properties being priced out of reach of the average middle-income earner," she said.
As an example, Nicholls cited the case where properties in 2003 cost $200 000 but are now costing more than $450 000. This, she said, was for an average
three-bedroom, two-bathroom house 1 200 square feet on 5 000 square feet of land.
"In order to qualify for such a property valued at $400 000 for a 30-year mortgage at eight per cent, the applicant will need to be earning an income of $7 000
per month.
"In 2003 an applicant earning a salary of $3 800 would have qualified for a similar property costing $200 000.
"Consequently, most of the mortgages being negotiated are joint mortgages where two incomes are required in order for applicants to qualify for a loan.
"There are a lot of people who come forward, but either the property they're looking for is not available or, in terms of their salary, they don't qualify."
She also said there were too few developers on the island targetting the lower and middle income ranges.
Niles considered the rising cost of living to have an effect on the mortgage market.
"The cost of housing is really moving away from the middle-income market. What is happening is that wages are not moving commensurate with cost."
High cost of living
He said the only way to tackle the high cost of living is "to raise wages, which would allow people to qualify for better mortgages".
George Ramsay from George Ramsay Realtors observed that potential homeowners were becoming a lot more shrewd in spending their money.
"People are shopping around more before deciding to take out a mortgage. They're becoming a lot more discerning before locking into a
particular company."
He said from his experience the middle-income market had been traditionally strong but the one undermining factor was that supply for the market was exceptionally low.
"The middle income usually drives the economy through cash or credit. The cost of living has definitely affected the middle-income buyer. In the middle-income range there are different expectations [particularly in terms of finishes and location] that may just not be available within a particular price [range]," he added.
However, Ramsay emphasised, the slow first quarter of the year was normal in this market, which he expected to improve in the coming months.
* michellespringer@nationnews.com