Take a mortgage that you can afford

Nov 03, 2013 News

By Leonard Gildarie
A friend sent me some photos of homes built from shipping containers, pointing out that he is amazed that more Guyanese are not looking for ways to construct cheaper homes.
The containers were placed side-by-side on foundations and the rooms and walls constructed to convert it into a livable area. But I want to discuss this a little later.

Container homes could be stylish and reasonably cost effective .

I have been receiving complaints about the hardship new homeowners are facing to meet their monthly mortgage payments. This is a serious problem. When granting a loan, the rule of thumb in the US and Canada is that the monthly payments should not exceed 30% of the gross income. The reasons are obvious. If your payments are higher, it will affect how you live. There must be money left over for food, utility bills, clothing, maintenance and travel, among other things. Not having enough money for these has a ripple effect on the economy as a whole.
The crash of the US economy in 2008 was largely blamed on the collapse of the housing market, after too many persons, enticed by unscrupulous mortgage lenders, ended up owing the banks. In turn, the banks, unable to sell off the foreclosed properties in time, were unable to quickly sell off these, leading to a cash situation. Remember, the banks make money mainly on core services of loans and mortgages.
In Guyana, Government has assured that the very conservative nature of the lending institutions makes it difficult for the housing sector to run into problems anytime soon. Representatives of the lending institutions told me that there is no ceiling and each potential home owner is assessed based on their circumstances.
It is important that you built what you can afford. If it is just three of you, with the third one a baby, and cash is limited, build something that can be extended in later days. Don’t compete with your neighbour. Build smart, what you will need. The temptation will be there to go grand to impress your relatives and friends. Bad move.
As mentioned before, in the United States and Canada, a commonly accepted guideline for housing affordability is a cost that does not exceed 30% of a household’s gross income. When the monthly carrying costs of a home exceed 30–35% of household income, then the housing is considered unaffordable for that household.
Housing is often the single biggest expenditure of low and middle income families. For them, their house is also the greatest source of wealth. The government has been arguing that owning a home makes you a millionaire and paves the way for you to be able to borrow to finance a business.
I also spoke about this before. I know some of the banks have been talking about partnerships with hardware suppliers. I have one suggestion that some countries have already started working on. Yes, it’s your electricity needs. It is no secret that with Guyana near the equator that it is mostly sunshine all year around. The banks should have some built-in mechanism where new homeowners can have the option of installing an alternative power system. While wind turbines are not a really big thing in the city, solar power has been growing in popularity in many communities, especially in the hinterland, where Government is rolling out its project to power the Amerindian villages.
A few of the hardware stores and other firms have been pushing the solar power panels which, trapping the sun’s rays, channels the energy down to batteries which are charged. These batteries provide power to the home. There have been arguments that the initial costs of these are high. But with the demand for volumes and the push to educate homeowners that Government may be offering concessions on solar power equipment being brought into the country, the financial institutions may very well find it lucrative to offer assistance with alternative power.
In any case, a landowner when applying for a mortgage would more than likely submit estimates for electrical works. I believe that the issue of offering new homeowners the option of choosing GPL or alternative power should be a no-brainer. Mixed with a prepaid meter, I think it could end up a winning formula for any new homeowner who wants to save money.
Now back to those container homes. I like this idea. I spoke about it before. Businessmen have told me that they can source used 40-foot shipping containers for as little as US$1,500-$2,000 ($300,000-$400,000). You will need to construct a foundation. From estimates, I do believe three containers could be used to build a three-bedroom home that could be stylish, reasonably cost effective and efficient at the same time. I am being told that a completed home could cost around $5.5M-$6M.
Of course, there will be challenges of transporting the containers to the site and having equipment move it to the foundation. It will need careful planning too.
The entire point is that we need to start thinking of ways to reduce the rising costs of material that the construction industry is facing. Stone, lumber and everything else construction-related have risen significantly over the past two years. While the Chinese stores have been providing stiff competition, the issue of quality of material being bought comes into play.
I have provided at least one of the alternatives to what could be a possibility of “affordable housing”.
I hope it spurs some kind of debate.
Do enjoy your weekend and drop those comments to [email protected]