Author: Avalene Connelly

The MMRR has featured prominently in the news recently.  Many people however are not familiar with the term and the purpose of this article is to try and demystify some of the mystery surrounding it.  First, a few questions for those of you who have a mortgage.

1. Do you know what type of mortgage you have – fixed, variable or adjustable?
2. Is there a penalty for early repayment?
3. What is the split in your monthly payment between principal and interest?

If you could not answer one or more of these questions, apparently you are not alone.  A few years ago, the Central Bank of Trinidad and Tobago carried out a survey and discovered that many borrowers were unaware of key aspects of the mortgage loans.  As a result, in September 2011, it introduced the Residential Real Estate Mortgage Market Guidelines.  The two important features of the guidelines were (a) the requirement of a Disclosure Statement and (b) the introduction of a Mortgage Market Reference Rate (MMRR). In the case of the former, it was specified that lenders must supply to borrowers a minimum set of information regarding their mortgage loans.

This information includes:

1. The amount borrowed and the term (Number of years)
2. The type of mortgage (Fixed, Variable or adjustable)
3. The MMRR and the margin (explained later)
4. When your rate is expected to be reviewed
5. The various charges and fees
6. An amortization schedule showing the split in payments between interest and principal.

As regards to the MMRR, it is a reference rate which, when added to a “margin” (determined by the lender), will equal the interest rate of the mortgage.  The margin is based on the credit history of the borrower, the Loan-To-Value ratio (the percentage of the value of the property that is borrowed) and the location of the property.  The MMRR on the other hand is calculated on a quarterly basis by the Central Bank and is a weighted average of yields of applicable Treasury Bonds and the Cost of Funds in the banking system.

The good news (from a borrower’s standpoint), is that if you have an adjustable or variable mortgage that is due to be reviewed and the MMRR has declined since the last date on which your interest rate was fixed, then the lender MUST lower the interest rate on your mortgage.  On the other hand, if instead the MMRR has increased, the lender does NOT have to increase the interest rate on your mortgage.

In addition, your mortgage rate can NOT be changed more than once every twelve months on your review date and there is also a ceiling of how much the interest rate on your mortgage can be increased by over any three year period (350 basis points or, the increase in the Repo’ rate – whichever is the larger).

As you can see from the above, the MMRR has a direct effect on your monthly mortgage payments.  You should therefore keep a check on it and ensure that you are being charged at the correct rate.  To do this, look at the disclosure statement from the lender or if you cannot find it, call them and find out what is your margin, the current interest rate on your mortgage and when is your review date.  On the review date, check the MMRR in the newspapers (or online at http://www.central-bank.org.tt/content/mortgage-market-reference-rate-mmrr) and add it to your margin.  If the answer is less than the interest rate on your mortgage, call your lender immediately to get it reduced! You can also check our loan calculator online at https://www.gafarrell.com/useful-information/ to ensure that the monthly payment is correct.  Should you need any assistance, please contact us (https://www.gafarrell.com/contact-us/) at any of our four convenient locations.

For a recent history of MMRR rates, you can go to http://www.centralbank.org.tt/sites/default/files/MMR%20Announcement%20March%201%202016.pdf

A copy of the history is also shown below.

At the beginning of 2014, market conditions appeared favourable. Since that time however, there have been significant developments that have changed the once bright outlook.

– While the global economy appeared to be coming out from under the dark cloud that had been hanging over it for some time, this is now threatened by the economic stagnation in the Eurozone and Japan, as well as the economic slowdown in China, not to mention the economic effects of the Ebola virus.

– Oil prices which have a significant effect on the local economy have plummeted from around $90-95 a barrel (at the beginning of 2014) to under $60 per barrel.

– After experiencing a growth of 2.1% in 2013, the Central Bank reported that economic growth locally was unexpectedly flat in the first quarter of 2014.

– Headline inflation in Trinidad & Tobago, after remaining relatively flat for the first half of 2014, rose to 9% in October 2014.

– Partly because of the increase in headline inflation mentioned above, the Central Bank relaxed its accommodative monetary policy stance it had adopted for the last four years and has now raised its repo’ rate twice within the last 3 months, from 2.75% to 3% initially and then subsequently to 3.25%. This has resulted in one commercial bank (so far) raising its prime lending rate to 8% which would seem to signal that the days of record-low, mortgage interest rates are now over.

As a result of these developments, the government has already started cutting back on expenses and reducing budgets, and private investors now appear to be in a “hold” mode due in part also to the upcoming elections in 2015. Nevertheless, there are still many projects well underway throughout the country which may help cushion the economic impact of all of the above.

In the north, there are:

• A 5-storey, 40,000 sq. ft. office building at Queens Park West (Cost $50M).
• A 6-storey 68,000 sq. ft. office building at Queens Park East (Cost $100M).
• Three, 6-storey office buildings in St. Clair (Costs unknown).

In the south, construction has started on two mega malls:

• C3 Centre with 6 levels and comprising 600,000 sq. ft. (Cost $450-500M)
• South Park Mall with 200,000 sq. ft. of leasable area (Cost $300M)

In Tobago, there is the $400M Milsherv office accommodation project while in the central region, there is the proposed $900M upgrade to the Centre City Mall.

In addition, the Central Bank of Trinidad and Tobago’s September 2014 Business Confidence Survey (BCS) reported that the corporate sector is cautiously optimistic about the near-to- medium term prospects.

Consequently, the short term outlook for the local economy and the real estate market is cloudy and filled with uncertainty. It now remains to be seen to what extent the local economy will be affected by all of these events.

The dark cloud that has been hanging over the world markets for the last few years eventually seems to be lifting. Evidence of this can be seen in the fact that the IMF has forecasted that the global economy will show growth by 2.9% in 2013 and 3.6% in 2014.

Not to be outdone, the local economy, after declining over the period 2009 to 2011 at an average of 2.3%, now appears to be turning around. Based on preliminary data, the Central Bank of Trinidad & Tobago has estimated that the economy grew, albeit slowly, in 2012 (1.2%) and 2013 (1.5%). Consequently, bearing in mind the somewhat mild recovery and with inflation seemingly under control, the Central Bank maintained its accommodative policy stance and left the repo rate unchanged at 2.75% where it has remained since September 2012. This has led to record-low mortgage interest rates that resulted in a double digit growth in demand for real estate mortgage loans.

All of this was not lost on private investors. After a self-imposed moratorium on the construction of commercial real estate for 4-5 years, there are now several signs that commercial development has picked up throughout Trinidad and Tobago.

In the north, construction is underway on:

• A 5-storey, 40,000 sq. ft. office building at Queens Park West (Cost $50M).
• A 6-storey 68,000 sq. ft. office building at Queens Park East (Cost $100M).
• Three, 6-storey office buildings in St. Clair (Costs unknown).

In the south, construction has started on two mega malls:

• C3 Centre with 6 levels and comprising 600,000 sq. ft. (Cost $450-500M).
• South Park Mall with 200,000 sq. ft. of leasable area (Cost $300M).

In Tobago, there is the $400M Milsherv office accommodation project while in the central region, there is the proposed $900M upgrade to the Centre City Mall.

Furthermore, the government announced that it is working on a strategic plan for the development of the 4C’s (Couva, Chaguanas, Carapichaima & Charlieville) and UDECOTT has stated that it has a mandate to construct 74 projects at a total cost of $19B.

Bearing in mind all of the above, the future of the local economy and the commercial real estate market appears bright for the first time in about five years. The major risks would seem to be the fall in international energy prices and the spiralling murder rate. Investors however seem to be hopeful, at least for now, that the government will take the necessary steps to mitigate these risks and ensure that growth continues in these two spheres.

Global growth has been weighed down, in large measure, by policy uncertainty surrounding the lack of a speedy resolution to the sovereign debt crisis in the Euro Area and to the fast approaching US debt ceiling crisis. Signs of a deceleration in some key emerging market countries have also dampened expectations for global growth.

In its October 2012 Monetary Policy Report, the Central Bank of Trinidad and Tobago stated that the local economy remains sluggish. Latest available data indicate that the economy contracted by 3.6% (year-on-year) in the second quarter of 2012 and as a whole, energy sector output contracted by an estimated 7.3% in the same period.

They further stated that inflation has retreated from the high double digit rates that were recorded earlier in the year and a major factor behind this deceleration has been the sharp slowdown in food prices, as supply shocks resulting from inclement weather have lessened. With domestic demand still relatively subdued, core inflation has remained fairly stable.

With economic activity still relatively stagnant and headline inflation on a declining trend, the Central Bank maintained an accommodative monetary stance to support a recovery and reduced the Repo rate to an all-time low of 2.75% in September 2012. This has led to commercial banks adjusting their prime lending rates downwards in response. However, it seems that investor confidence has not yet shaken off the effects of the economic and financial crisis of 2008 and credit to businesses which had been staging a modest recovery since March 2012, lost some momentum and slowed to 2.3% in August 2012.

Nevertheless, the Central Bank has advised that there are some underlying signs of an incipient recovery in 2012. In addition, the launch of the CLICO Investment Fund (CIF) on November 01 has brought some closure to the issue of the funds due to CLICO Policyholders and it is hoped that this development will positively impact the confidence of consumers, investors and producers and start the economy on a more certain recovery trend.

Consequently, the Central Bank has projected real GDP growth for the local economy to be in the order of 1.0% in 2012, with a chance of close to 2.5% in 2013 subject to the following assumptions:

a) firms in the energy sector have fully completed their major maintenance operations;
b) the industrial relations climate remains settled; and
c) public investment projects are implemented on time and efficiently.

Similar to the local economy which it traditionally mirrors, the local real estate market, has also been sluggish. The Central Bank has reported that the estimated median price of a three-bedroom house remained unchanged over the last 12 months. In an attempt to stimulate growth in the real estate market, the Government, in its 2012/2013 budget, has proposed certain tax exemptions with respect to residential and commercial buildings and residential land.

It is therefore felt that with the local economy predicted to rise, albeit slowly, and given the proposed tax incentives as well as the excess liquidity and low interest rates now prevailing, the real estate market could show some positive signs within the coming twelve months.