The structure of the mortgage market for housing is no accident. The commercial banks and the NBS are competing in the same housing market and offer similar prices for their products as a consequence of government policy. The housing drive of the administration enabled the mortgage market to be defined by loan size as well. Changes introduced by the Government of Guyana in 2009 extending the ceiling of low-income mortgages have helped to further define the market structure. The ceiling for low-income mortgages was G$3 million, but that was expanded to G$8 million three years ago as part of the continued effort by the administration to push its housing programme. This change enabled the commercial banks to offer mortgages to persons with differing income levels and on the same terms as the NBS. Both the NBS and the commercial banks offer loans under G$3 million, between G$3 and 8 million and in excess of G$8 million. The NBS however has a ceiling of G$12 million and, as noted in the first part of this article, is exclusively confined to the housing market. The commercial banks on the other hand have no predetermined loan limit for their mortgages, except for Citizens Bank that indicates a G$1.5 million maximum on its web site.
A review of the online data of the commercial banks indicates also that for mortgages of G$3 million or less, customers can expect to pay, in some cases, a rate of interest similar to that offered by the NBS. Enquiries of the NBS last week revealed that it was asking for 4.25 percent on amounts less than or equal to G$3 million. That is a rate of interest that could be found among the pricing of at least two commercial banks competing in that market. The pricing was equally competitive in the G$3 to 8 million range. Commercial banks that reported their pricing and the NBS were also charging an interest rate of 6.25 percent for amounts borrowed in the G$3 to 8 million range. With the commercial property and the high-end housing markets exclusively available to them, the commercial banks have more room to operate. The pricing or interest rates offered in those markets vary among the lenders and do not conform to any restrictive policies as in the low-income housing sector.
Despite using loan size as a way of segregating the market, no organization reports on the number of mortgages issued at a particular loan amount. The reports of the Bank of Guyana, for example, do not give information about the number of mortgages issued during a given year, let alone linking the number of loans issued in a year to a given mortgage size. It provides information solely on the value of mortgages outstanding at the end of the reporting period. It has not been possible also to find information in the annual reports of the commercial banks on the number of loans that are linked to a given loan size. Even though the 2010 Annual Report of the NBS reports the number of loans issued, it does not categorize it by loan size or the value of loans issued. The source that provides that type of data is the Bureau of Statistics of Guyana (BOS). However, the BOS only provides data on the number and value of loans recorded, as well as on the number and value of loans cancelled. The mortgage data reported by the BOS provide the best opportunity to establish the average loan size. But even this information has to be used with some degree of caution because it does not distinguish between mortgages purchased for commercial buildings and those purchased for housing purposes.
Nonetheless, during the period of the NBS reign, two opposing trends were evident. This writer only had access to data from 1993 to 2011 and could observe the steady rise in both the number and value of loans that were recorded from 1993 to 2000. Sharp declines then occurred in both the number and value of loans that were recorded from the year 2001 to 2006. This latter trend began to reverse itself in 2007 where the growth in the two variables has shown signs of life. However, the upturn in mortgage quantity and value has been markedly uneven. Using 2006 as a base, the value of mortgages recorded has doubled while the quantity of mortgages recorded has increased by a mere 25 percent. It coincides with a very active period of the commercial banks where mortgage balances have grown by 26 percent compared to nine percent for the NBS. Despite the energy displayed in the mortgage market, the number of loans recorded in 2009 and 2010, the fastest growth periods, remains significantly below the levels of 1996 to 2001 where the highest activity was observed.
It is not clear what is responsible for this observed phenomenon. However, it should be kept in mind that the administration increased the limit of loans that qualify as low-income from G$3 to 8 million in 2009. It introduced many outreach activities, the “One-Stop Shop”, and the Building Expo to drive demand for home mortgages. Based on the net change in the number of loans and in the outstanding mortgage values, the majority of mortgages issued by the NBS within recent years appear to be within the G$3 to 8 million range. This means that an increasing number of borrowers might be from the low-middle income category of customers or members since it is a membership organization. The NBS acknowledges in its 2010 Annual Report that it depends on the housing programme of the administration for growth opportunities in the mortgage business. With this acknowledged reliance, it might be reasonable to conclude also that the housing policy is focusing more on middle income families and less on low-income families. This would not be a surprise since a large percentage of the population, 20 percent, is earning less than nine percent of income. Under such circumstances, it would be increasingly hard to find truly low-income earners who could afford a mortgage.
Despite the opportunities that come its way from the national housing programme, the NBS has slipped in influence. One example of the shift in fortunes of the NBS can be seen in the rate at which its mortgage balances have been growing. At the national level, the total mortgage balances have grown by 18 percent per annum since 2004, reflecting a rapid expansion in the value of the mortgages. However, there were marked differences between the rate of growth of the balances held by the banks and those held by the NBS.
The balances held by NBS grew by an annual average of 10 percent from 2004 to 2011 while the balances held by the commercial banks grew by an annual average of 35 percent during the same period. This growth is expected to continue as the commercial banks continue to focus on borrowers building commercial properties and high-income houses, and continue to enjoy special concessions for lending in the low-end market. The speed with which the expected growth in the mortgage lending of commercial banks takes place will determine how fast the influence of the NBS will decline.