The Tribune

• Ownership ‘hurdles raised a little bit higher’

• 30% of home sales fail on mortgage woes

• Sir Franklyn cites pressures of gambling

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Middle class Bahamians will find it “incredibly difficult to ever get a home”, developers and realtors warned yesterday, with financing and other hurdles constantly being raised that “little bit higher”.

Matt Sweeting, real estate broker with 1 OAK Bahamas, told Tribune Business that three out of every 10 potential property deals he handles fail due to the buyer’s inability to secure mortgage financing and this number has increased in recent years post-COVID.

Speaking after the Central Bank’s lending conditions survey for the 2023 first half revealed the mortgage loan approval ratio had fallen to its lowest level in four-and-a-half years, with less than on in three applications approved by commercial banks, he added that the industry’s standard time for processing such credit has in many cases near-tripled from 21 days to 60 days.

Affirming that “99 percent” of the transactions he brokers require the buyers to come up with mortgage financing, Mr Sweeting told this newspaper that applying and gaining the necessary bank approvals is “the longest process in the transaction right now”.

“Traditionally we were writing the industry standard language for financing at 21 days some years ago,” he explained. “We’ve been forced to adjust that to a minimum industry standard of 30 days, and are ending up at 45 to 60 days for someone to get approval for financing. Often times that can end up in the denial basket.

“A major new factor in the application for financing is the Credit Bureau. A number of financial institutions are now requiring people to get credit reports to to supplement their own financial data. This has been another hurdle or challenge in the home buying process.”

Mr Sweeting estimated that around 30 percent of potential home and real estate sales fall through because the buyer cannot qualify for a mortgage. “I’d say that three out of every 10 transactions fail due to financing,” he said. “That’s definitely increased in more recent times due to the additional financial hurdles institutions want you to jump through to qualify.

“They’re being a tight on lending post-COVID just because of the speculation around lending.” Bahamian commercial banks, though, first became much more conservative over issuing mortgages following the 2008-2009 financial crisis, when they became stuck with a huge number of delinquent and distressed properties that they were unable to offload swiftly once borrowers defaulted.

Mr Sweeting, meanwhile, said “a fairly new policy” is the requirement from some banks that a survey report to establish the boundaries of the subject properties be obtained as “a contingency for approval” rather than a condition of the closing. This was forcing either the buyer or the seller, or a combination of the two, to come up with an extra $600-$1,000 much earlier in the process.

“The hurdles are a little bit higher,” the 1 OAK principal reiterated. “There’s only one commercial institution that’s accepting 5 percent down payments. That means other institutions want 10 percent minimum. This means every hurdle increases the cost for people being able to purchase.

“Self employed people are having the hardest time getting financing because banks want to see their financial track record for a number of years. People in hospitality, it’s being made more difficult for them. They [the banks] want a history of gratuities and they’ll only consider a portion of those” in the income calculation.

Despite all these obstacles, Mr Sweeting said the desire of Bahamians to acquire their own homes has not diminished. “People are still very ambitious. This has not dampened their ambition for home ownership,” he said.

“People still see this as a mark of true success. For someone working for a number of years people want this for their families. People are working their way through this, even though there are more obstacles, working their way to the finish line.”

Sir Franklyn Wilson, the Arawak Homes and Sunshine Holdings chairman, told Tribune Business that soaring post-COVID construction costs, over-borrowing on consumer loans and the prevalence of gambling were all factors combining to undermine the affordability of home ownership for many Bahamians and push this beyond their reach.

“The statistics to which you refer reflect the net outcome from a number of forces,” he said of the Central Bank’s lending survey results. “It’s increasingly difficult for persons in the middle class to purchase homes.

“Firstly, there is serious upward pressure on construction costs.. since COVID, very, very appreciably in the period of time to which that study refers. There’s very little doubt that the cost of construction has gone up far faster than the incomes of potential borrowers would have gone up. The statistics you are quoting would be evidencing some of that reality.”

While that is propelling the cost of new-build residential homes beyond the reach of many Bahamians, Sir Franklyn added: “The second thing referenced is what is happening to people’s debt levels. It’s very concerning and it’s not a new phenomenon. It’s been a phenomenon in train for some time since the public policy rules were changed for personal financing in The Bahamas.

The Central Bank report showed that more than one-third - or one in every three - of mortgage loan applications was rejected during the 2023 first half because potential borrowers were still breaching the more generous 50 percent debt service ratio.

Using the Central Bank’s statistics, just 356 of the total 1,104 mortgage applications submitted during the 2023 first half were approved by its commercial bank licensees. This means that two-thirds, or 748, were rejected. Of that 748, some 33.6 percent or 251 were declined because the applicants’ debt service ratios would breach the 50 percent benchmark.

This would mean more than half their income would be going to servicing debt, placing their finances under stress especially if something went wrong. That 251 is equivalent to 22.7 percent of all 1,104 mortgage applications, which means close to one in every four submissions was dismissed because the potential borrowers/homeowners are already too heavily indebted.

“That’s not likely to get better soon,” Sir Franklyn said of heavily indebted borrowers. “The third factor, in my view, which was not referenced, would be the prevalence of gambling. Let’s face it. In this climate, what’s happening with gambling is having an impact. When you combine those three things, in my humble view, there’s only going to be serious change when you affect two of those three things.

“I think it’s going to be incredibly difficult for a lot of people to ever get a home. I don’t want to be doom and gloom, and wish to be proved wrong. But that’s the way I see it. This goes to the wider question of society’s common good.

“From that point of view, it’s not a good thing. It’s a legitimate matter for public policy concern, and these are not easy issues. These are not recent issues. It warrants the concern of anyone interested in the common good of the Commonwealth of The Bahamas.”

The Central Bank’s 2023 first half lending conditions survey showed that almost nine out of every 10 loan applications during the six months to end-June 2023 was of the consumer variety. And, in a sign of the financial stress facing many Bahamian households, there was a 27 percent rise in debt consolidation applications to 2,863, of which 19,89 or 69.5 percent were approved.

“What does debt consolidation mean?” Sir Franklyn asked. “It means you’re borrowing from Peter to pay Paul. Debt consolidation means you borrow from Peter to pay Paul.”