An­tho­ny Wil­son

In analysing the Varin­stall mort­gage prod­uct in­tro­duced to the lo­cal mar­ket by the Work­ers' Bank in the late 1970s, the Cen­tral Bank, in its 2007 Pub­lic Ed­u­ca­tion Pam­phlet, ti­tled "The Res­i­den­tial Mort­gage Mar­ket in T&T," states: "The on­set of re­ces­sion­ary con­di­tions in the econ­o­my in the lat­ter half of the 1980s se­vere­ly af­fect­ed prop­er­ty val­ues as well as per­son­al in­comes and cre­at­ed un­usu­al stress­es for the prod­uct."

The Varin­stall Mort­gage, which start­ed with a low ini­tial mort­gage in­stal­ment, was based on the as­sump­tion that the in­comes and prop­er­ty val­ues of home­own­ers would con­tin­ue to rise.

It was felt that if the in­comes of home­own­ers rose over time then he, she or they would have been able to pay the high­er in­stal­ments of both prin­ci­pal and in­ter­est, which kicked in af­ter a few years.

The 1980s re­ces­sion, which was caused by a col­lapse in oil prices sim­i­lar to to­day, in­val­i­dat­ed many of the as­sump­tions that were made 30 years ago.

The re­ces­sion then meant that the Work­ers' Bank "even­tu­al­ly faced se­vere prob­lems of loan de­fault," lead­ing to about 90 per cent of their en­tire mort­gage port­fo­lio be­ing in ar­rears in April 1989 when the in­sti­tu­tion was in "tech­ni­cal in­sol­ven­cy," ac­cord­ing to the Cen­tral Bank re­port.

The sto­ry of peo­ple lock­ing up their homes and hand­ing the keys to their bankers may be apoc­ryphal, but there is prob­a­bly an el­e­ment of truth to it.

The con­tention here is that if the mid­dle-in­come fam­i­lies are not very care­ful, the hol­low­ing out of the res­i­den­tial hous­ing mar­ket that oc­curred in the 1980s–with such dev­as­tat­ing so­cial, eco­nom­ic and fi­nan­cial im­pacts–can very well oc­cur again.

That as­sess­ment is based on a De­cem­ber 2011 pa­per en­ti­tled "Hous­ing Fi­nance Pol­i­cy un­der Dutch Dis­ease Pres­sure: the mort­gage mar­ket in T&T."

One of the con­clu­sions of the In­ter-Amer­i­can De­vel­op­ment Bank pa­per, which is co-au­thored by deputy Cen­tral Bank Gov­er­nor San­dra Sookram, is that "the price of hous­ing in T&T is very high­ly cor­re­lat­ed with the in­ter­na­tion­al price of oil."

By that I think the au­thors mean that if a re­ces­sion lasts long enough, it leads to re­trench­ment, sta­t­ic or de­clin­ing salaries and re­duced dis­cre­tionary in­come caused by high­er tax­es and a fall in trans­fers and sub­si­dies.

All of that may make it more dif­fi­cult for mid­dle-in­come fam­i­lies to keep up with their mort­gage pay­ments.

If the own­er­ship of homes by mid­dle-in­come house­holds is threat­ened by the re­ces­sion, is there any­way those fam­i­lies can re­spond?

Here are some sug­ges­tions:

1) Have a dis­cus­sion with your mort­gage lender about whether you are pay­ing a high­er in­stal­ment than you should. Some of lenders will not low­er your mort­gage in­ter­est rate un­less you specif­i­cal­ly ask them;

2) Find out if your mort­gage is rat­ed un­der the Mort­gage Mar­ket Ref­er­ence Rate, which is the in­ter­est rate bench­mark against which mort­gages are to be priced and repriced. That rate, which was sup­posed to in­crease the dis­clo­sure and trans­paren­cy of the mort­gage mar­ket, was in­tro­duced in Sep­tem­ber 2011. It was sup­posed to in­clude all new and ex­ist­ing res­i­den­tial re­al es­tate, but clear­ly it does not;

3) If you have a lump sum set aside to but­tress your re­tire­ment sav­ings, give se­ri­ous thought to mak­ing a down­pay­ment on your mort­gage. This is es­pe­cial­ly use­ful giv­en the fact that mort­gage rates are like­ly to in­crease in the near fu­ture.