Publication date: 5 November 2022 | Covering: October 2022
Monthly Briefing
- US Federal Reserve raises to 3.75–4.00 per cent on November 2 — four days ago; fourth 75bps hike
- BOJ tightening cycle continues; overnight rate at elevated levels, peak approaching
- UK political and gilt market turmoil adds to global financial instability through October
- NHT individual limit remains J$6.5 million; subsidised rates critical buffer against commercial cost
- Jamaica inflation above target; global commodity and energy prices sustaining cost-push pressure
- Construction material costs elevated; housing supply response constrained by input costs
Fresh Fed Hike: 3.75–4.00 Per Cent as of November 2
Just four days before this review is published, the US Federal Reserve’s Federal Open Market Committee raised the federal funds rate by a further 75 basis points at its November 1 to 2 meeting, bringing the target range to 3.75 to 4.00 per cent. This was the fourth consecutive 75 basis point increment — an extraordinary pace of tightening that had not been seen since the early 1980s. Chair Jerome Powell’s November press conference was significant for the signals it sent about the path ahead: while the FOMC was committed to further increases, Powell acknowledged that the Committee was now ready to begin considering the pace and the eventual stopping point of the cycle, introducing language about the “cumulative tightening” and the “lagged effects” of rate increases that markets read as a pivot toward a slower pace.
The November hike brings cumulative Federal Reserve tightening since March 2022 to 375 basis points in under nine months. The speed and scale of the US rate cycle has reshaped global financial conditions, driving US Treasury yields sharply higher, strengthening the US dollar against virtually all currencies, and tightening credit conditions across emerging and developing markets. For Jamaica, which is exposed to US monetary conditions through its external debt profile, its foreign exchange market, and its trade and remittance flows, the sustained elevation of US rates has been a significant external headwind throughout 2022.
BOJ’s Tightening Cycle: Approaching the Peak
The Bank of Jamaica’s overnight policy rate has been raised substantially through 2022, reaching its most elevated level in many years as the BOJ addresses inflation that has persistently exceeded the 4.0 to 6.0 per cent target range. The BOJ’s tightening path has been front-loaded, with significant increments delivered at successive MPC meetings from early in the year, reflecting the central bank’s view that pre-emptive and decisive action was necessary to prevent inflation expectations from becoming entrenched. Market participants and analysts broadly expect the BOJ’s rate to reach or approach its terminal level in the current quarter, with the November MPC meeting widely anticipated to deliver a further adjustment.
For Jamaica’s commercial mortgage market, the BOJ’s sustained tightening has progressively raised the cost of funding for deposit-taking institutions. Commercial mortgage rates across Jamaica’s lenders have been ratcheting upward through 2022, tracking the broader increase in the cost of funds. Borrowers who locked in commercial mortgages at rates available in 2020 or 2021 are insulated from the current repricing, but new borrowers face materially higher rates. The rate environment is reshaping the market’s affordability dynamics, reinforcing the value of NHT access and pushing some buyers toward smaller transactions or longer savings periods.
UK Gilt Market Turmoil: A Warning About Fiscal-Monetary Tension
October 2022 was marked globally by the extraordinary events in the United Kingdom’s gilt market, triggered by the Truss government’s September 23 “mini-budget” of unfunded tax cuts. The resulting surge in UK gilt yields — threatening pension funds with liability-driven investment strategies — required emergency Bank of England intervention and culminated in Prime Minister Liz Truss’s resignation in late October after just 45 days in office. The episode was a stark demonstration of the limits on fiscal expansion in a high-inflation, high-interest-rate environment: markets rapidly punished a government that moved against the grain of monetary orthodoxy, driving up borrowing costs and forcing a reversal of policy.
The UK episode carries lessons that are not entirely abstract for Jamaica. Small open economies with significant external financing needs are acutely exposed to shifts in global market sentiment. Jamaica’s own fiscal consolidation programme, maintained with discipline through the IMF-supported reform period, has provided a buffer against this kind of vulnerability. The country’s improved debt ratios and fiscal surpluses have strengthened its external creditworthiness, reducing the risk of a confidence crisis of the type that engulfed the UK in October 2022. This fiscal credibility also provides the BOJ with more effective monetary policy transmission, as markets are more willing to hold Jamaican dollar assets when the fiscal backdrop is sound.
NHT and Housing Affordability Under Pressure
Jamaica’s housing affordability challenge has intensified in 2022 on two fronts: rising borrowing costs and elevated construction prices. Construction material costs — particularly steel, cement, timber, and fixtures — have been elevated throughout 2022 due to global supply chain disruptions and commodity price inflation. Developers in both the private sector and within the NHT’s own housing programme have faced higher project costs, which have been partially passed on in property prices and partially absorbed through reduced development margins. The combined effect of higher property prices and higher commercial mortgage rates has compressedaffordability more than either factor alone would imply.
The NHT’s subsidised rates — 0, 2, and 4 per cent against commercial rates in the 8 to 12 per cent range — have become an even more critical tool for maintaining housing market access in this environment. The J$6.5 million individual limit provides a floor of affordable financing for eligible contributors, and the multi-applicant options (J$13 million for two contributors, J$19.5 million for three) extend that access to higher property price points. For contributors planning acquisitions, ensuring NHT eligibility — through consistent contributions and registration in the contributor’s name — is more strategically important than at any point in recent memory.
Looking Ahead
The BOJ’s November MPC meeting and the US Federal Reserve’s December 13 to 14 decision are the two most significant near-term events for Jamaica’s mortgage market. If the BOJ delivers a further increment in November — as is widely anticipated — commercial mortgage rates are likely to edge higher in response. The Fed’s December decision will signal how much more US tightening remains in the pipeline for 2023, with implications for the global financial environment and Jamaica’s external financing conditions.
For property buyers and homeowners, the practical advice is to focus on what can be controlled: NHT contribution history, deposit savings, and the selection of properties within financially manageable parameters. The rate environment will eventually turn — the BOJ has signalled that its easing cycle will begin once inflation is sustainably within target — but the exact timing is uncertain, and planning on the basis of the current rate environment remains the prudent course.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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