HOW difficult is it for a young professional or first-time borrower to own a home? At an average salary of $125,000 per month — the minimum amount that qualifies persons for a loan — it’s much near impossible.

Impossible without significant income from other sources because the spread between the savings and mortgage rates is just too wide.

“The only people buying homes now are cash buyers because nobody can afford a mortgage,” said Anya Levy, realtor and executive director at Valerie Levy and Associates .

“We feel that in Jamaica we are being abused with this large spread — the lending versus savings rate is too much,” she argued.

A cursory glance at the savings rate versus the borrowing rate of some major building societies and agencies reveal that saving towards your own home may be futile, given the standards set by the institutions.

Sunday Finance compared the saving and mortgage rates of four institutions — First Caribbean Building Society (FCBS), Jamaica National Building Society (JNBS), Scotia Jamaica Building Society (SJBS) and Victoria Mutual Building Society (VMBS) — as at March 2010. The comparison revealed spreads of between 14.5 per cent to 17.9 per cent between savings and loan rates. In addition to the difference between what is earned and what is paid in interest, some building societies stipulate onerous terms for borrowers.

Jamaica National Building Society (JNBS) charges among the lowest in loan rates at 13.75 per cent for qualified borrowers. On one hand, the deal offers what seems like attractive benefits including free health insurance for one year, a discount on a home security system, free content insurance worth $200,000 for one year and a possible waiver on mortgage fees. However, in addition to the high interest rate, borrowers must have 20 per cent of the loan amount in the account with the institution and this must be held for at least a year. And while the interest rate paid to the bank is 13.75 per cent, the interest paid by the bank on the savings account is 4.25 per cent. This means that if a borrower has a mortgage for $8 million, 20 per cent or $1.6 million should be held in a savings account for at least a year, during which time the borrower earns an interest of 4.25 per cent on the amount while paying 13.75 per cent on the loan.

VMBS, in addition to charging 13.99 per cent on residential mortgages and requiring a fifth of purchase value in an account for a year, also requires that borrowers deposit a savings upkeep of $600 per month per million dollars. Therefore, if a borrower owes $10 million on a property, he is required to have $2 million deposited in savings, plus an additional $6000 per month “upkeep commitment” to the account. In return, the saver receives 7.15 per cent interest on the $2 million.

FCBS charges 15.5 per cent on mortgage for first-time borrowers but pays 3.25 per cent on local savings between $50,000 and $199,999. One of the fees for accessing the loan is a one-time compulsory saving of $50,000, refundable with interest after three years. This translates to a return of approximately $5,035 on the $50,000 over the period. Whereas if the borrower accesses up to $12 million at 15.5 per cent, they would pay approximately $1.86 million in interest for the first year alone.

SJBS has a rate of 17 per cent but is willing to negotiate to a minimum of 15.5 per cent for rates priced at the 17 per cent at March 2010. The institution offers up to 90 per cent financing and mortgagers have up to 30 years to repay. However, savings rates go from 4.75 per cent to 6.25 per cent.

Levy, who anticipated a turnaround in the industry with the Jamaica Debt Exchange and the reduction in interest rates that should have made borrowing more affordable, said the persistently high rates are hurting the viability of the real estate sector for both the buyers who cannot buy and the agents who cannot sell.

“The biggest incentive for the industry is the interest rate. It’s the barometer for our industry and if the interest rates are not reduced there is no other incentive that would work,” Levy said.

She argued that the building societies should be in the business of making money through mortgages, but if the mortgages cannot be accessed by borrowers because of onerous terms and high rates, then not even they would benefit from the high interest rates.

“If they lower the interest rates, more people will qualify so more people will borrow so they will have the volume,” said Levy.

The realtor noted that the cheapest homes range between $6 to $7 million, but from her experience the average Jamaican still cannot qualify for a mortgage at a rate of 14 per cent because their earnings must be at least three times what they are borrowing.

To purchase a home for $10 million at a rate of 13.75 per cent with 20 years to repay, the borrower would have to pay $122,000 per month for the 20 years. A qualified borrower would have to earn in excess of $370,000 per month to be able to qualify. However, if the interest rate is reduced to 10 per cent, with the same repayment period, the monthly payment would fall to $96,000. A borrower who earns at least $290,000 per month might be able to afford the mortgage.

“What you will find is that a lot more people will be in that bracket who will qualify, especially young professionals who need a home,” Levy said.

But interest rates are sticky on the way down, bankers say.

Ian Kelly, senior vice-president of asset management and advisory Services at First Global Bank told Sunday Finance that there is going to be a lag in the reduction of lending rates but that some banks are gradually reducing rates on many products — mortgage rates are among those seeing the time lag.

First Global does not have a building society, but Kelly noted that generally interest rates are going down.

“Certainly on the investment side it has dived,” he said.

“But what you would have noticed is that at First Global and at other banks you would have seen a reduction in specific products and you will continue to see that specific approach to interest rates until there comes a point in time when there’s a general shift in the business,” Kelly said.