Homeowners are set to face a double whammy as several deposit-taking institutions (DTI) are set to increase the interest rate charged on existing mortgages within the next two months while general insurance companies have increased premiums by more than 50 per cent since the start of the year.
The latest bank to send out a release to its customers is Sagicor Bank Jamaica Limited (SBJ) which informed last week that it would be raising rates on July 3 and that the new interest rates and monthly payments would be communicated in short order. SBJ had increased interest rates on variable rate loans by up to 2.50 percentage points on January 26.
"Sagicor Bank Jamaica Limited wishes to advise that we will be increasing our mortgage interest rate by a maximum of 0.6 per cent due to the central bank policy interest rate increases over several months," the release noted.
The Bank of Jamaica (BOJ) increased its policy rate from 2.50 per cent to 7.00 per cent in 2022 and has maintained that rate since then with its next monetary policy decision to take place on June 29.
JN Bank Limited and customers are set to face an increase on July 1 after the original June 1 timeline was pushed back. The last time JN Bank customers faced an increase on their mortgage rate was last June with increases ranging from 0.25 â€“ 0.75 percentage points with the March 2022 numbers revealing that $82.04 billion or 72.90 per cent of the loan book consisted of mortgages.
"Like many other commercial banks, we have also formally notified our mortgagors with variable rate mortgages that there will be an increase in their mortgage rates. These increases have become necessary because of the general rises in interest rates and costs due to inflation locally and globally," said JN Bank in an e-mail on Monday.
While JN Bank didn't reveal the latest range in the query, some JN Bank customer mortgage rates are set to increase to 9.25 per cent on June 30. This puts the range increase between 50 to 100 basis points.
JN Bank has also increased the interest rate charged on its credit card from 34 per cent to 45 per cent in its latest round of revisions on fees charged to customers. JN Bank's loan book grew from $113.14 billion in March 2022 to $129.52 billion in March 2023 as per the BOJ's quarterly publication. However, the asset base decreased from $236.46 billion to $231.23 billion over the same period.
National Commercial Bank Jamaica Limited (NCBJ) will be increasing variable interest rates on existing mortgage rates on July 1 (the increase was originally set for June 1), which will increase the monthly payments for many customers. NCBJ's mortgage rates are fixed for the first three years before resetting at later periods. This is the latest interest rate hike by the country's largest commercial bank and the third hike in less than a year after previous interest rate hikes on February 1 this year and last year July 2022.
The Victoria Mutual Building Society (VMBS) also increased its interest rate on loans on May 1 by a maximum of 1.25 percentage points, less than a year after the 1.50 percentage point hike last July. Mortgages made up 87.68 per cent of VMBS's $102.61 billion loan book at the end of 2022.
The impact of the policy rate increases over the last 18 months is being felt even wider throughout the economy.
"The Bank of Jamaica's (BOJ) interest rate has increased by 5% over the past several months, impacting the entire local financial sector, as such, as at May 1, JMMB Bank will adjust all its variable interest rate loans by up to 1.75% for existing retail clients, and on a case-by-case basis, loans for new and existing business clients will be adjusted. Loans that were previously adjusted, as a result of the BOJ's policy rate increases, have not been further adjusted," said JMMB Bank (Jamaica) Limited Chief Executive Officer Jerome Smalling in a recent e-mail.
He highlighted that with respect to new loan applications, the interest rates charged are 3.0 percentage points higher than last year which is just below the BOJ's 5.0 percentage point hike. JMMB Bank's loan book increased from $91.50 billion in March 2022 to $113.12 billion in March 2023 with the asset base increasing 18 per cent to $176.39 billion over the same time period.
The only DTI which has been consistently growing its mortgage book is the Bank of Nova Scotia Jamaica Limited (BNSJ) whose residential mortgage book increased 57 per cent to $43.84 billion in October 2022. When consolidated with Scotia Jamaica Building Society, the portfolio expanded 28 per cent to $61.66 billion. BNSJ tacked on 100 basis points on February 1 to some categories of existing mortgages.
BNSJ has been actively promoting mortgage switching over the last year with switching costs to be covered by the bank and at a lower rate. The headline borrowing rate on mortgages stands at 8.49 per cent with the website mentioning a special offer interest rate of 6.50 per cent. The commercial bank is effectively able to grow its loan book since it has an interest expense of $0.02 for every $1.00 in interest income it generates which reflects a low cost of funding.
One customer highlighted that the considered move to switch mortgage providers comes as the interest rate on their mortgage has moved from 6.95 per cent to 9.25 per cent over the last two years which includes the latest hike. The latest hike would effectively mean an additional $20,000 per month or $240,000 annually which does not account for the massive jump in property insurance premiums which have gone up by as much as 60 per cent in some instances and stretched many consumers thin even with insurance premium financing. Insurance brokers are finding it difficult to get new quotes from general insurers who are facing reduced capacity from their reinsurers.
The BOJ's monetary policy committee noted in its latest release the observed effects of higher interest rates on loan growth along with reduced inflation. Headline point-to-point inflation for April came in at 5.8 per cent with core inflation (excludes food and fuel prices from consumer price index) standing at 5.7 per cent, slightly below the upper bound of the BOJ's 6.0 per cent inflation target.
"The flow of new loans to the private sector has also declined appreciably in real terms over the six months to March 2023 by 6.5 per cent and generally reflects the impact of higher interest rates and the tightening in credit conditions. The MPC was of the view that the maintenance of tight liquidity in the financial system and the preservation of relative stability in the foreign exchange market have had a significant impact on limiting the pass-through of imported inflation to inflation in the Jamaican economy, the BOJ release stated.
"We remain cautiously optimistic about the outlook of the economy over the short-term, while recognizing that it is within the remit of the Bank of Jamaica (BOJ) to determine the necessary policies and policy rate. We remain innovative, agile and solution-oriented as we continue to navigate this current economic environment," Smalling closed as the sector gears up for the implementation of Basel III later this year.