Jamaica Homes Monthly Mortgage & Housing Finance Review — November 2022

Publication date: 5 December 2022 | Covering: November 2022

Monthly Briefing

• BOJ raises overnight rate to 7.00 per cent in November; highest rate in the modern policy framework
• US Federal Reserve raises to 3.75–4.00 per cent on November 2; fourth consecutive 75bps hike
• US December meeting approaches; Fed signals continued tightening but pace review underway
• NHT individual limit holds at J$6.5 million; contributor rates 0, 2, 4 per cent
• Jamaica CPI inflation above 10 per cent; peak readings likely in or near this period
• Commercial mortgage rates rising sharply in response to BOJ tightening

BOJ Reaches 7.00 Per Cent: Peak of the Tightening Cycle

The Bank of Jamaica’s Monetary Policy Committee raised the overnight policy rate to 7.00 per cent in November 2022, marking the culmination of the most aggressive tightening cycle the BOJ has executed in the modern monetary policy framework. The rate, which stood at historically low pandemic-era levels entering 2022, has been lifted in a series of substantial increments over the course of the year as the BOJ moved decisively to arrest above-target inflation that has been driven by global commodity price shocks, Jamaican dollar depreciation, and domestic demand pressures. The November hike to 7.00 per cent establishes a highly restrictive monetary posture that the BOJ has signalled will be maintained until Jamaica’s CPI inflation is durably within the 4.0 to 6.0 per cent target range.

The BOJ’s decision to raise to 7.00 per cent reflects both the persistence of above-target inflation and the need to maintain a credible interest rate differential against the US dollar in an environment where the Federal Reserve has itself been hiking aggressively. A BOJ rate that trails US rates too closely risks amplifying Jamaican dollar depreciation, which in turn feeds imported inflation — creating a self-reinforcing dynamic that the BOJ is clearly determined to prevent. At 7.00 per cent, Jamaica’s overnight rate significantly exceeds the US funds rate of 3.75 to 4.00 per cent, providing a buffer against exchange rate pressure.

Commercial Mortgage Market: Elevated Rates Take Hold

The BOJ’s tightening cycle has had a direct and significant impact on Jamaica’s commercial mortgage market. Deposit-taking institutions, facing a substantially higher cost of funds as the BOJ’s rate rose through 2022, have progressively repriced their mortgage products. By December 2022, commercial mortgage rates across Jamaica’s major lenders are in the range of 8 to 12 per cent per annum, depending on the institution, the loan-to-value ratio, and the borrower’s risk profile. This represents a material increase from the rates available in 2020 and 2021, when the accommodative policy environment kept commercial borrowing costs at the lower end of their historical range.

The practical effect for property buyers is a significant reduction in the purchasing power of commercial mortgage finance. A buyer who could afford a monthly commercial mortgage payment of J$80,000 two years ago would now find that the same payment services a materially smaller loan at the higher interest rate. This affordability compression has driven a shift in buyer behaviour: more prospective purchasers are maximising their NHT entitlement before supplementing with commercial finance, prioritising entry-level and mid-market properties within NHT ceiling ranges, and deferring higher-end purchases until the rate environment improves.

US Federal Reserve: November 75bps Hike, December Decision Pending

The US Federal Reserve’s FOMC raised the federal funds rate by 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 unprecedented pace of tightening — as the Fed fought to control US inflation that had reached forty-year highs. Chair Powell’s November press conference introduced an important nuance: while further rate increases remained appropriate, the FOMC was beginning to consider both the pace and the eventual terminal level, acknowledging that the cumulative and lagged effects of rate hikes needed to be weighed against the risk of overtightening. Markets interpreted this as a signal that the December meeting might deliver a step-down to 50 basis points.

The December 13 to 14 FOMC meeting is upcoming as this review is published. If November US inflation data — to be released in mid-December — confirms the deceleration trend visible in October data, the case for a 50 basis point December increment is strong. Whether the Fed is approaching its terminal rate — the point at which further hikes give way to a plateau — is the central debate in global financial markets as 2022 draws to a close.

NHT’s Critical Role in Maintaining Market Accessibility

In the current environment, the National Housing Trust’s subsidised mortgage rates have become an even more important differentiator in Jamaica’s property market. The gap between NHT rates (0, 2, and 4 per cent) and commercial mortgage rates (8 to 12 per cent) is now at or near its widest point in recent years, making NHT eligibility a decisive factor in housing affordability. Contributors who qualify for NHT finance up to the J$6.5 million ceiling are effectively insulated from the market’s most punishing rate environment for the portion of their purchase within that limit.

For buyers requiring finance above the NHT ceiling, the structure of the blended NHT plus commercial mortgage remains the most common approach. A buyer accessing J$6.5 million from the NHT at 2 per cent and J$3 million from a commercial lender at 9 per cent, for example, achieves a blended rate significantly below the commercial rate alone, making the overall purchase viable within a broader range of income levels. Estate agents and mortgage brokers report that structuring advice — helping buyers understand their NHT entitlements and the optimal commercial supplement to minimise total interest cost — has become an increasingly valued service in the current market.

Looking Ahead

The immediate horizon is dominated by the US Federal Reserve’s December 13 to 14 decision. A step-down to 50 basis points would confirm the pace recalibration signalled by Chair Powell in November and provide some comfort that the most intense phase of global monetary tightening is passing. For Jamaica, a slower Fed pace reduces — though does not eliminate — the external pressure that constrains the BOJ’s own flexibility.

Domestically, the BOJ’s hold at 7.00 per cent is expected to persist into 2023 as the central bank assesses the lagged effects of its 2022 tightening on domestic demand and inflation. Property market participants should plan for an extended period of elevated commercial mortgage rates and continue to prioritise NHT access, eligibility maintenance, and affordability planning as the foundations of sound property acquisition strategy in the current cycle.

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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