Caribbean Mortgage Markets Under Pressure as High Interest Rates Squeeze Affordability Across the Region

Publication Date: 3 February 2024  |  Coverage Period: 3 January – 2 February 2024

Morning Briefing

• The US Federal Reserve held its benchmark rate at 5.25–5.50 percent at its January 2024 meeting, dashing hopes of an early 2024 rate cut and maintaining intense pressure on Caribbean mortgage markets that have been tracking US monetary policy closely.
• Bank of Jamaica’s policy rate remains at 7.00 percent as the central bank balances inflation control against the affordability crisis facing Jamaican homebuyers, with commercial bank mortgage rates running at 9–12 percent in local currency terms.
• The National Housing Trust of Jamaica processed its highest volume of loan applications in January since 2021, reflecting pent-up demand from first-time buyers who have been priced out of commercial bank mortgage products by sustained high rates.
• Barbados’s mortgage market saw commercial lenders report a 15 percent year-on-year decline in new residential mortgage originations in the fourth quarter of 2023, a direct consequence of elevated borrowing costs and constrained affordability for middle-income purchasers.
• The Dominican Republic’s construction sector continues to expand despite the high-rate environment, driven by tourism-linked FDI and domestic demand in the Punta Cana and Santo Domingo metropolitan markets where developer financing structures differ from conventional mortgage products.
• The Eastern Caribbean Central Bank maintained its minimum savings rate and prime lending rate structures in January, with OECS commercial banks reporting tightening credit conditions for residential mortgage applicants across member territories.

The High-Rate Environment: How Caribbean Mortgage Markets Arrived Here

The Caribbean mortgage market in early 2024 is a product of the most aggressive global monetary tightening cycle in four decades. Beginning in March 2022, the US Federal Reserve raised its benchmark federal funds rate from near zero to 5.25–5.50 percent by July 2023 — a cumulative increase of 525 basis points in just seventeen months. This tightening was the Fed’s response to inflation that peaked at 9.1 percent in June 2022, driven by pandemic-era supply disruptions, unprecedented fiscal stimulus and the commodity price shock following the Russian invasion of Ukraine.

Caribbean central banks were not operating in isolation from these pressures. With most Caribbean economies either dollarised, pegged to the US dollar, or highly dollarised in their financial systems, the Fed’s rate trajectory set the floor for Caribbean borrowing costs. The Bank of Jamaica — the region’s most independent monetary authority — had already embarked on its own tightening cycle, raising its policy rate from 0.50 percent in October 2021 to 7.00 percent by November 2022, where it has broadly remained since. The Eastern Caribbean Central Bank, serving the OECS currency union with its fixed US dollar peg, effectively imports US monetary policy conditions with a modest structural spread.

The result, by January 2024, is a Caribbean mortgage market characterised by borrowing costs that would have seemed extreme by the standards of the preceding decade. In Jamaica, the era of 6 to 8 percent commercial bank mortgage rates that prevailed through much of 2018–2021 has given way to a 9 to 12 percent environment in Jamaican dollar terms. In the OECS, where mortgage rates historically ran at relatively modest spreads over US Treasury yields, the rate reset of 2022–23 has pushed effective mortgage costs to levels that severely constrain what a median-income household can afford to borrow.

The January 2024 Federal Reserve meeting brought no relief. Fed Chair Jerome Powell and the Federal Open Market Committee held rates steady and signalled that the committee would need to see considerably more evidence of sustained inflation reduction before beginning any easing cycle. Market participants who had been pricing in rate cuts as early as March 2024 were forced to reprice, with futures markets shifting toward a June 2024 timeline at the earliest. For Caribbean borrowers, this means the high-rate environment is likely to persist through at least the first half of 2024.

Jamaica: The NHT as a Critical Mortgage Lifeline

In Jamaica, the National Housing Trust has assumed a role of extraordinary importance in the high-rate environment. As a mandatory savings scheme funded by employer and employee contributions, the NHT provides subsidised mortgage financing to qualifying contributors at rates that bear no relation to commercial market conditions — typically between 3 and 6 percent depending on the contributor’s income level and the loan tier. At a time when commercial bank mortgage rates are running at 9 to 12 percent, this differential represents a subsidy of extraordinary magnitude.

The consequences of this subsidy are visible in the NHT’s application pipeline. January 2024 saw the Trust process its highest volume of new loan applications since 2021, as first-time buyers who have been excluded from commercial mortgage markets by high rates turned to NHT financing as the only viable path to homeownership. The NHT’s mortgage product is not unlimited, however — loan ceilings apply, and the maximum NHT loan amount, while periodically adjusted, cannot finance the full purchase price of a new home in most parts of the Kingston metropolitan area at current prices.

The gap between what the NHT can finance and what a new home costs in Kingston is a defining feature of Jamaica’s housing affordability crisis. New two and three-bedroom units in the primary Kingston housing market are typically priced between J$18 million and J$35 million, while NHT loan ceilings have not kept pace with property price inflation. Many applicants are therefore forced into hybrid financing arrangements — NHT funds for part of the purchase and commercial bank “top-up” mortgages for the balance — which partially undermines the subsidy benefit by exposing a portion of the loan to market rates.

The Bank of Jamaica’s monetary policy committee faces a difficult balancing act. Holding rates at 7.00 percent protects against imported inflation through a stronger exchange rate, but it also contributes to the affordability crisis in the domestic housing market. The central bank has signalled that it is watching inflation developments carefully and may consider modest rate reductions if inflation trends continue to decelerate toward its 4 to 6 percent target range — but as of February 2024, no easing has been forthcoming.

Barbados and the OECS: Rate Pressures on Small Island Mortgage Markets

In Barbados, the mortgage market is navigating a structural tension between strong demand from overseas buyers — particularly from the United Kingdom, Canada and the United States — and constrained demand from domestic first-time purchasers. The overseas buyer segment operates in a different affordability universe: many are cash buyers or are financing through foreign mortgage products at rates benchmarked to their home countries rather than Barbados commercial rates. This segment continues to drive transactions in the island’s luxury and upper-mid market, particularly on the Platinum Coast and in emerging areas like Speightstown and the East Coast.

Domestic Barbadian buyers are in a fundamentally different position. Commercial bank mortgage rates on the island, historically linked to the US prime rate given Barbados’s fixed exchange rate peg, have risen materially over the 2022–23 tightening cycle. Fourth quarter 2023 data showing a 15 percent year-on-year decline in domestic residential mortgage originations reflects this pressure directly. The median Barbadian household income has not risen proportionally to offset higher debt service costs, meaning fewer households can qualify for the mortgage amounts required to purchase homes in an environment where construction costs have also risen substantially.

Across the OECS, the fixed US dollar peg administered by the Eastern Caribbean Central Bank means member states essentially import US monetary conditions with a modest structural spread. St Kitts and Nevis, Antigua and Barbuda, St Lucia, Grenada, Dominica and St Vincent and the Grenadines all face the same dynamic: their commercial banks price residential mortgages off a cost-of-funds base that reflects US rate conditions, meaning the Fed’s 5.25–5.50 percent benchmark flows through — with a spread — to retail mortgage rates that are pricing many first-time buyers out of the market.

Dominican Republic and Trinidad: Different Market Structures, Different Outcomes

Not all Caribbean property markets are equally affected by the high-rate environment. The Dominican Republic presents an interesting case of a large economy with a relatively sophisticated construction and mortgage finance sector that has maintained strong momentum despite elevated borrowing costs. The DR’s construction industry — one of the most productive in the Caribbean — continues to expand, driven partly by tourism-linked FDI that operates on developer financing structures rather than conventional consumer mortgage products.

In the Punta Cana tourism corridor, the financing model for many new condominium and resort developments is structured around pre-sale agreements with staggered payment plans from international investors, bypassing the conventional mortgage market entirely. This pre-sale model, common in the Dominican market, insulates the construction sector from the immediate demand-suppressing effects of high retail mortgage rates, even as domestic Dominican buyers face their own affordability pressures from elevated peso-denominated borrowing costs.

Trinidad and Tobago presents yet another variation. The Trinidad mortgage market has historically been shaped by the country’s energy wealth, which supports above-average household incomes in the oil and gas sector and generates government revenues that fund housing subsidies through the Housing Development Corporation. HDC housing, offered at below-market prices to qualifying applicants, serves a role analogous to Jamaica’s NHT in providing a subsidised pathway to homeownership. Commercial mortgage rates in T&T, while elevated relative to the low-rate era, have not risen as dramatically as in some other regional markets, partly reflecting structural features of the T&T banking system’s funding base.

Caribbean Leaders This Month

Jamaica leads the regional conversation on mortgage market innovation as NHT recorded a surge in applications in January 2024. The Trust’s role as the primary mortgage lifeline for first-time buyers in a high-rate environment underscores how critical well-designed housing finance institutions are to Caribbean homeownership rates.

Dominican Republic demonstrated the resilience of its construction sector in the face of high rates, with tourism-linked FDI and developer pre-sale financing models sustaining activity in the Punta Cana and Santo Domingo markets despite broader mortgage market headwinds.

Barbados faces a bifurcated market clearly this month: overseas luxury buyers transacting strongly while domestic first-time purchasers are squeezed by the rate environment. The government’s affordable housing programme is under pressure to close the gap that high commercial rates are creating.

Trinidad and Tobago continues to benefit from energy sector income flows that partially buffer mortgage affordability pressures, with HDC supply providing a subsidised market segment that keeps homeownership accessible for a broader income range than would otherwise be possible.

St Lucia has seen tourism-related demand support property values in coastal and resort areas, even as the domestic mortgage market tightens. The island’s growing tourism revenues are supporting government finances and, through them, social housing investment.

Cayman Islands operates in a distinct financial environment where ultra-high property values and a large expatriate professional population mean that mortgage affordability is less of a political flashpoint than in other Caribbean territories, though the rate environment is affecting the volume of leveraged transactions.

Antigua and Barbuda saw its Citizenship by Investment programme continue to generate real estate investment that bypasses the conventional mortgage market, with CBI-qualifying investments supporting new hotel and villa development activity.

Guyana remains a special case where oil revenues and economic growth are driving property demand that absorbs high borrowing costs more readily than in smaller, less-dynamic Caribbean economies. Georgetown residential and commercial property prices continue to rise against the fundamental backdrop of energy sector expansion. Overall January regional performer: Jamaica, for the NHT’s sustained role in keeping homeownership within reach for middle-income Jamaicans in one of the most challenging mortgage rate environments of the past two decades.

Looking Ahead

The Federal Reserve’s next scheduled meeting is in March 2024, and Caribbean mortgage market participants will be watching carefully for any shift in the Fed’s rate guidance. The consensus among regional banking economists is that meaningful Fed rate cuts are unlikely before mid-2024 at the earliest, meaning Caribbean mortgage rates will remain at current elevated levels through at least the end of the first quarter.

For housing policy makers across the region, the sustained high-rate environment is intensifying pressure to find non-market mechanisms to support homeownership access. Jamaica’s NHT ceiling review, Barbados’s affordable housing programme allocation, and OECS governments’ social housing pipelines will all be closely watched in the months ahead as policymakers attempt to respond to a mortgage market that is effectively closed to the bottom half of the income distribution in most Caribbean territories.

February’s peak tourism season will provide important data on the Caribbean economic resilience story: strong tourism revenues generate foreign exchange earnings that support currency stability, which in turn gives central banks space to consider future rate adjustments without triggering exchange rate pressure. The interplay between tourism performance and monetary policy will be a defining theme for Caribbean property markets throughout 2024.

The Caribbean Property & Investment Review is published monthly and covers developments during the preceding calendar month. All factual statements reflect information publicly available at the time of publication.