Budget break

Tucked away in a relatively obscure corner of the budget and overshadowed by news of increased prices for alcohol and cigarettes, Government’s overarching plan for the energy sector in a time of continuing low prices and newly instituted taxes, are two provisions which ultimately aim to give both income groups greater access, not only to home ownership but also higher interest savings opportunities.

The first is the adjustment of the Trinidad and Tobago Mortgage Finance Company’s two and five percent mortgage schemes for low income and first time home owners, where both the qualifying income and property value ceiling have been raised.

Those accessing the two percent mortgage financing scheme will now be able to purchase homes priced up to $1,000,000 up from $850,000. Meanwhile, the upper qualifying income for this facility, geared toward lower income household heads, is now $14,000, up from $10,000. Those choosing to go with the five percent mortgage scheme are now able to buy homes worth up to $1,500,000 up from $1,000,000, with an upper qualifying income limit of $30,000.

The second is a new savings bond, which the finance minister indicated was established specifically to address “the low interest rate environment that has prevailed for some time.”

Business Day spoke to Brent Salvary, director of Portfolio Management at KSMB Asset Management, who said that in societies across the world, the middle class/middle income earners often bear the brunt of the burden in any economy and are often the largest contributors in terms of taxes. Regarding the increase in both the qualifying income and property value ceiling for the five percent stream, Salvary said: “I think the increase would benefit much more people than the first (the two percent), in terms of the number of people willing to apply for a mortgage in that salary range”, referring to a phenomenon developing over the past 15 to 20 years, where increasing numbers of middle class/ middle income professionals in this country who would like to purchase their own homes but are unable to do so because they are too well paid to access the TTMF’s subsidised programme, but not well paid enough to get mortgages at more traditional lending agencies.

Salvary, also said the increase in the property value ceiling for both the two and five percent facilities take into account the reality that homes have increased in cost over the last eight to ten years, putting home ownership out of the range of lower income groups and most would be first time buyers.

“It’s a good idea,” said Salvary, “ It widens the pool of the number of people able to invest in a home.”

However, other savings and investment opportunities have remained relatively limited for lower and middle income groups. Savers and investors in this bracket are punished for saving in the current lower interest environment, since most rates of return on deposits are not outstripping rates of inflation now, or in the future.

In his budget speech, Minister Imbert said this trend had to be reversed because the “mobilisation of savings was critically important for financing growth and development.” Imbert continued that this new savings bond was created considering the saving profiles of the general citizenry and would have three maturities, with interest rates linked to the current yield curve, these being three years at three percent, five years at 3.5 percent and seven years at 3.75 percent.

“This is also a good idea in that this is an increase in the supply of securities that will meet investor demand,” said Salvary, while providing people with a lower appetite for risk with a good yield.

The bonds will be issued in denominations of $1,000 and bondholders will initially be entitled to purchase up to $100,000 among the three maturities. Imbert has also promised the roll out of housing and education bonds in 2017.