NEW mortgages written in 2022 outpaced prior-year figures but players in the real estate market believe there will be a slowdown in the number of mortgages disbursed in 2023 as higher interest rates begin to take hold.

Bank of Jamaica data show that up to September 2022 a total of 3,948 new mortgages were written, at an average of 438 per month. That compares to 4,390 mortgages which were written for all of 2021, at an average of 365 per month. The figure for 2022 was 32 per cent higher than the prior year. At the same time, the average value of each mortgage was $15.4 million in 2022, down slightly from $15.43 million in 2021 despite rising costs for materials.

However, Andrew James, a realtor with AS James and Associates and a former head of the Realtors Association of Jamaica, is expecting the growth in the number of new mortgages written this year to slow.

“The increase in interest rates are affecting some developers and purchasers. There have also been delays in completions,” he told the Jamaica Observer in early January.

Pierre Shirley, president of the Realtors Association of Jamaica, is simultaneously wary of weaker developments in 2023, citing lower loan approval rates and possible mortgage defaults because of higher interest rates.

“Pre-pandemic, the average processing time of a real estate transaction with a mortgage company would be between 3-6 months. Since the pandemic that time line has extended to 6-9 months [for various reasons] and even beyond,” the RAJ head told the Business Observer.

He argued, “That in itself would lend to a decline in the number of transactions that would have been completed during the year.”

However, while Paul Elliot, deputy CEO of the VM Group, stayed clear of analysing mortgage processing time at the height of the pandemic for clues about what the market could look like, he said the consensus is that mortgage demand will slow this year.

“There is usually a correlation between a dampening of demand in the market with interest rates rising. And so at the point at which we did our projection for this year, on the back of several interest rate increases by the central bank, we opted for being cautiously optimistic,” he said as he indicated that VMBS has lowered the forecast for the growth in the number of mortgages it is expected to write this year.

“Now we could blow through the lowering of our numbers but that is dependent on a number of factors. But, I actually think there could be a little bit of slowing down in demand this year,” he continued.

However Leesa Kow, managing director of JN Bank, was more optimistic in her outlook.

“Mortgage demand continues to grow and we have continued to provide several pre-approvals as new properties emerge on the market. The demand has been sustained amid an increase in housing prices and a rise in interest rates. We believe this sustained demand is being driven by the perception that real estate remains a very lucrative investment that guarantees a very positive return. Many people are also genuinely desirous of owning a home and will purchase once they can afford the payments,” she told the Business Observer.

However for Shirley, “The increase in interest rates will affect affordability for many and therefore [I expect] banks will approve lower loan amounts in line with the payment the borrowers can afford, based on their income, or decline applications for loan amounts that one may have been able to qualify for this time last year based on their income and interest rates then, compared to the same income and the current interest rates now.”

The realtor said that since mortgage rates are variable, current mortgage payments are subject to the same increases, with some borrowers having already been notified by their bank.

“There is a chance of borrowers falling behind in payments, thus affecting the default rate. Depending on how widespread that is or becomes, that could have a negative impact on the overall real estate market.”

As to defaults, Shirley said: “There is a higher chance of this happening with investment/rental properties that may be vacant, such as properties that were bought for the short-term rental market where the owners may not be getting the rental income that they may have projected and/or anticipated, or even in long-term rentals where the owner/borrower is relying on the rental income to make the mortgage payments but the rental payment is fixed for the period of the lease and cannot be adjusted simply because the bank has adjusted the mortgage payment.

“The owner/landlord would have to wait until the end of the lease term, and even then they are restricted to a 7.5 per cent increase due to the Rent Restriction Act, which may not be an adequate increase to be in line with the increase in mortgage payments.”