The continued expansion in mortgages to facilitate the increased construction of houses and commercial properties has become “a key structural vulnerability” on the books of lending institutions, especially for credit unions.
Financial sector regulators believe, however, that the situation does not pose an immediate threat to financial stability.
This comes as elevated construction costs continue to constrain mortgage affordability and the supply of houses, an outcome that could weaken mortgage demand and slow credit expansion within the real estate market, if it persists. The analysis is detailed in the 2025 Financial Stability Report published by the Central Bank of Barbados and the Financial Services Commission.
The publication notes that real estate remained the largest sectoral exposure for commercial banks, finance companies and credit unions last year.
It said that mortgages accounted for nearly half of total loan portfolios at these deposit-taking institutions (DTIs), with credit unions maintaining the highest concentration of mortgage lending.
Growth momentum
“Banks continued to expand mortgage lending and loans to the broader real estate sector; however, the share of real estate lending remained stable at approximately 46 per cent, as credit growth across other loan categories also strengthened,” the report stated.
“Given Barbados’ sustained economic growth momentum and historically low unemployment, the domestic macroeconomic environment bolstered stable mortgage performance by supporting household income and repayment capacity.”
The report added that “while mortgage exposures do not pose an immediate threat to financial stability, they remain a key structural vulnerability given their size and concentration within balance sheets”.
“Banks extended 14.7 per cent more new mortgages to households than in 2024, and 16.6 per cent more to non-financial corporations, reflecting continued expansion in both the commercial real estate and residential real estate markets,” it stated.
“Outstanding commercial mortgages grew by 5.1 per cent, while residential mortgages increased by 2.1 per cent. Mortgage depth increased modestly in 2025 (1.1 percentage points), reflecting continued expansion in real estate lending relative to economic activity.”
The report explained that mortgage depth “refers to the size or significance of mortgage lending relative to the overall economy, typically measured as the ratio of total mortgage debt outstanding to gross domestic product (GDP)”.
In addition, the report said that the ratio of mortgages to Tier 1 capital rose for banks, which signalled “heightened sensitivity to a potential real estate market correction, though the ratio remains below pre-pandemic levels.
“Following the rapid expansion of mortgage lending within the credit union sector since 2021, credit unions now exhibit the highest concentration of mortgage loans relative to total loans among domestic financial institutions, while maintaining comparatively lower capital buffers than other financial intermediaries,” the financial sector regulators reported.
The publication shared that lower borrowing costs and robust credit demand supported mortgage activity in 2025, although growth moderated from the prior year’s levels. “Mortgage growth remained positive despite slower expansion across both household and non-financial corporation lending categories. The weighted average mortgage lending rates for banks and finance companies declined by ten and 14 basis points, respectively, remaining lower than their ten-year averages,” it stated.
Favourable conditions
“According to the Survey of Bank Lending Conditions, residential mortgage demand remained resilient, while favourable macroeconomic conditions boosted activity in the commercial real estate market.”
It was also reported that elevated construction costs continue to constrain mortgage affordability and housing supply, posing downside risks to the housing market outlook.
“Although the building materials index remained flat in 2025, costs remain significantly above pre-pandemic levels. Persistently high construction costs could weaken mortgage demand and slow credit expansion within the real estate market,” the report cautioned.
“Under adverse scenarios, supply chain disruptions, rising oil prices, and inflationary pressures could further increase costs, reducing affordability, raising household indebtedness, and dampening demand for new mortgages.”
With household lending still the largest source of credit exposure in 2025 for financial institutions, regulators said mortgages continued to dominate and consumer lending strengthened.
“Mortgage balances grew by 2.1 per cent alongside improved credit quality. Consumer loan growth was driven by higher demand for auto-financing, while credit card balances increased modestly by 0.6 per cent,” they reported.
“Credit quality improved significantly, with the share of non-performing credit card loans declining from 3.5 per cent in 2024 to 2.9 per cent in 2025, suggesting improved repayment capacity,” the report added. (SC)
The post Mortgages rule loans sector appeared first on nationnews.com.
