Just 12% Of Mortgages Finance 'New Buildings'

New Central Bank of the Bahamas date has provided a further insight into the sluggish home construction market, with just 12 per cent of mortgage applications involving 'new builds'.

The regulator's survey of lending conditions in the 2015 second quarter found that out of 740 residential mortgage applications, just 89 were for the construction of new homes.

While 90 per cent of the 748 total mortgage applications were for private houses, the Central Bank report said: "Given the current high level of inventory in the domestic real estate sector, the majority of applications were to acquire existing dwellings (75.7 per cent), with approximately 12 per cent of potential owners seeking new construction homes.

"The bulk of new construction applicants were seeking new single-family properties, and less than 10 per cent of applicants were in the market for income generating properties."

Of the 89 'new home' mortgage applications, some 80.9 per cent (four out of five) or 72 were approved.

The findings, though, again show why many Bahamian contractors are struggling for work. The construction of new residential homes was, for many, their 'bread and butter, but the depressed economy and real estate market has drastically reduced 'new build' volumes.

And, with Bahamian commercial banks collectively offering several thousand 'distressed' properties for sale, home purchasers are focusing on these potential 'cut price' deals rather than new construction.

Still, the highest loan approval rate in the mortgage category was for applications to construct single dwelling homes, standing at 96.4 per cent.

Of the 560 mortgage applications to finance existing homes, the Bahamian commercial banking sector approved 497 or 88.8 per cent during the three months to end-June 2015.

"Just over 80 per cent of the mortgage applications received were approved," the Central Bank report said.

"For applications denied, the most frequent reason was that the applicants’ debt service ratios exceeded the 45 per cent benchmark set by the Central Bank in August 2004."

Other reasons why mortgage loan applications were rejected were prior loan delinquencies (2.7 per cent); underemployment (2 per cent); insufficient time at the applicant's current employer (2 per cent); and the absence of a down payment (1.4 per cent).

With most commercial banks believing that private sector credit demand "will remain weak for an extended period", the Central Bank added: "In a bid to stimulate private sector credit demand, most banks have created a number of promotional campaigns, with special features that are not available year-round, and with characteristics that differ by loan type.

"These extraordinary measures, which are set to continue,include a deferment of monthly payments (for usually the first month), extended payment terms, reduced down payment or a reduction in their lending rates.

"Five (5) banks noted that their promotions entailed a reduction in the lending rate, particularly for mortgage and consumer loans, while extending the payment terms was indicated as a promotion mechanism by three banks. One institution plans to lower its down payment in its upcoming promotion," the Central Bank added.

"Based on survey inputs, promotional mechanisms for upcoming mortgages will include decreases in the lending rate and down payment requirement, and an extension in the payment terms. Consumer loan promotion strategies are poised to include a lowering of the lending rate and extended payment terms, with the latter also identified for the commercial segment."


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