Brathwaite: Banks abhor the risk of construction loans
Some local banks are completely averse to the risks involved in construction loans and will not approve the loans, said Kenrick Brathwaite, managing director of the Bank of the Bahamas. Guardian business Yesterday, I added that market inflation should be even more vigilant.
Brathwaite said banks are more interested in ready-to-use mortgages than financing new homes.
“There are very few banks offering mortgages,” Brathwaite said.
“Most of them just want a turnkey operation.
“When you take out a construction loan, there are just too many things to manage.
“Banks have always done it bluntly. There are now a number of banks in the country that do not offer mortgages for construction because there is so much risk built into the construction industry.”
Mr. Brathwaite was answering questions about how mortgagees and contractors have lived amid high inflation and soaring construction materials.
In this white paper, we understand that some contractors are experiencing high cost overruns and, in some cases, dysfunction.
But Brightwait said he had never heard of such a situation and would be surprised if the contractor didn’t include the possibility of a price increase of up to 5% in the contract.
He added that there are other ways to protect yourself from being bound by contracts that require contractors to pay more money up front.
“Once they start doing that work, they’re kind of tied to the price they gave you,” Brathwaite said.
“Unless there is some variable there.
“You protect yourself up front as a homeowner and as a contractor you lock yourself in at a price you know. Even if there’s a 5% rise, you won’t lose money.
“And even in times of inflation, there are many ways contractors can get money.
“We have to speed up the work. Instead of taking five weeks to do the job, it takes three weeks to do the job, or four weeks to do the job. It makes a big difference, so the contractor can save some money.”
He added that it is rare for banks to offer borrowers variable loans to meet rising costs associated with inflation.
“When you deal with mortgages, you deal with mortgages in fixed-contract contracts,” says Brathwaite.
https://thenassauguardian.com/brathwaite-banks-risk-averse-on-construction-loans/ Brathwaite: Banks abhor the risk of construction loans