Jamaica Homes Monthly Mortgage & Housing Finance Review — June 2024

Publication date: 5 July 2024 | Covering: June 2024

Monthly Briefing

• BOJ holds overnight rate at 7.00 per cent; June meeting communications signal easing cycle is near
• US Federal Reserve holds at 5.25–5.50 per cent at Jun 11–12 meeting; September cut probability rises
• Jamaica CPI at 5.2 per cent in May; sustained approach to the 4–6 per cent target upper bound continues
• Commercial mortgage rates elevated; affordability remains constrained for non-NHT borrowers
• NHT J$7.5 million limits approach one-year mark; strong application volumes persisting
• Residential property market active in mid-year; developer launches and diaspora demand steady

BOJ Holds and Signals: The Easing Cycle Approaches

The Bank of Jamaica’s overnight policy rate remains at 7.00 per cent per annum following the Monetary Policy Committee’s June 2024 meeting. The rate has now been held at this level since November 2022 — a period of nineteen months — as the Bank sustained a tight monetary posture to bring Jamaica’s headline inflation toward the 4.0 to 6.0 per cent target range. What is new in the June meeting’s outcome is the character of the BOJ’s communication: the Committee signalled that the monetary conditions for an easing are approaching, and that the Bank is preparing to begin a gradual reduction in the policy rate. This amounts to the clearest forward signal the BOJ has provided since the tightening cycle concluded.

The Bank’s easing signal did not come with a commitment to a specific meeting date or quantum of reduction. The BOJ’s practice is to retain full discretion over the timing of policy adjustments, ensuring that each decision is grounded in the data available at the time of the meeting. However, the June communication shifts the balance of market expectation: from an environment where further holds were the modal outcome to one where the next move is down, with timing dependent on the evolution of inflation and the external accounts. Most market participants now look to the August meeting as the most likely point of first action.

For Jamaica’s housing market, the signal function of BOJ communication has its own effect independent of the actual rate change. Prospective buyers who have been deferring decisions pending clarity on the rate trajectory now have a clearer read: the direction is toward cheaper borrowing, and the only uncertainty is the pace. For commercial lenders, the easing signal prompts a reassessment of fixed-rate mortgage pricing and the structure of new loan products, as forward interest rate assumptions shift. Some institutions may begin to offer improved terms ahead of the formal cut, competing for the pool of creditworthy borrowers who are now clearly in a “wait-and-assess” mode.

US Federal Reserve Holds; September Cut Expectations Firm

The US Federal Reserve’s Federal Open Market Committee held the federal funds rate unchanged at the 5.25 to 5.50 per cent target range at its June 11 to 12 meeting. The hold was expected, and the Committee’s statement and updated economic projections provided the real news. The June “dot plot” of individual member expectations showed a median of one rate cut in 2024, down from three anticipated at the March meeting, reflecting the Committee’s assessment that US inflation has been more persistent than earlier expected. Nevertheless, market pricing for a September 2024 cut has remained elevated, with traders pricing a roughly 65 to 70 per cent probability of at least one cut by the September 17 to 18 meeting.

The Fed’s cautious posture has global implications. A prolonged hold at the peak US rate sustains upward pressure on the US dollar, which in turn exerts pressure on currencies like the Jamaican dollar and on borrowers with US dollar liabilities. Jamaica’s commercial banking sector has some exposure to US dollar mortgage lending and to foreign currency funding, and any disruption to the exchange rate can increase the real cost of servicing. The BOJ’s management of the Jamaican dollar exchange rate through its interventions has been effective through this period, and the international reserves position remains adequate, but the persistence of elevated US rates is a continuing background risk.

Inflation: Sustained Approach to the Target Range

Jamaica’s headline inflation for May 2024 was 5.2 per cent on a point-to-point basis, the most recent reading available at the time of publication. This follows April’s 5.3 per cent and represents the continuation of the gentle deceleration that has characterised 2024’s inflation narrative. The June 2024 CPI data, to be published by STATIN in mid-July, will provide the next update. The trend is clear: inflation is grinding steadily toward the 4.0 to 6.0 per cent target range, with the most recent readings hovering within one percentage point of the upper bound.

For mortgage borrowers and potential buyers, the inflation environment has practical significance beyond the monetary policy it implies. Persistent above-target inflation erodes the real value of savings, making deposit accumulation harder and lengthening the time required to amass a down payment for a property purchase. It also raises construction costs, as building materials and labour prices increase in nominal terms. The prospect of inflation returning durably to target and staying there is therefore welcome for the housing sector not just as a precursor to rate cuts but as a stabilising force on the input costs that determine residential property prices.

Commercial Mortgage Market: Elevated but Stable

Commercial mortgage rates across Jamaica’s deposit-taking sector have remained in the 8 to 12 per cent range through 2024, broadly reflecting the sustained BOJ policy rate of 7.00 per cent and the cost of funds in a market that has priced in the extended tightening cycle. The highest-quality borrowers with strong credit histories, significant equity, and stable employment have been able to access the lower end of this range; standard market borrowers face rates at or above 10 per cent. This level of mortgage cost, combined with the property price appreciation that has continued through 2023 and into 2024, has kept affordability under pressure for the cohort of potential buyers who rely on commercial finance rather than NHT facilities.

The silver lining for commercial mortgage borrowers is that the easing signal now in the market implies lower rates ahead. Borrowers considering fixed-rate products face the classic timing question: lock in now at the existing elevated rate, or wait for lower rates with the risk that property prices rise further in the interim. For most buyers, the most prudent approach is to proceed when individual financial readiness allows rather than to speculate on the rate cycle, particularly given that the expected quantum of BOJ cuts over the next twelve to eighteen months — likely 100 to 150 basis points in aggregate — will be distributed gradually rather than delivered all at once.

NHT and Affordable Housing Finance

The NHT continues to operate at the July 2023 product limits: J$7.5 million individual, J$8.5 million for eligible lower-value properties, and multi-applicant ceilings of J$15 million and J$21 million for two and three-contributor loans respectively. As the Trust approaches the one-year mark of these reforms in early July, application volumes have remained strong, with the J$7.5 million product providing a meaningful uplift from the previous J$6.5 million ceiling. The SMART Energy loan, introduced in 2024, has added a complementary product for residential energy improvements that reflects the government’s broader agenda on energy transition.

Looking Ahead

The next major event for Jamaica’s mortgage market is the BOJ’s August Monetary Policy Committee meeting, now widely expected to deliver the first rate cut of the easing cycle. If the June CPI data, due in mid-July, confirms continued approach toward the target range, the case for an August reduction will be firmly established. A 25 basis point cut to 6.75 per cent would begin the process of reducing borrowing costs for variable rate mortgage holders and would shift the market’s framing toward the future path of easing rather than the question of whether cuts will come at all.

In the United States, economic data over July will shape the September Fed decision. Strong employment data could delay Fed action; continued inflation moderation could accelerate it. For Jamaica, the ideal scenario is a Fed cut in September that validates and supports the BOJ’s own easing trajectory, providing a global tailwind for the domestic rate cycle. In the housing market, the combination of approaching rate relief and sustained structural demand — underpinned by Jamaica’s 150,000-unit deficit — continues to frame a market that is constrained more by supply than by underlying demand.

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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.