Banks focus on affordable home loans

The backlog in affordable housing remains a daunting hurdle for social development, but with banks thinking out of the box and government initiatives in motion, the sector could be set for a boom.

The migration from renting and informal housing to buying property is gaining speed and local banks are actively seeking to secure a role in the affordable housing market.
Nicholas Nkosi, the head of affordable housing at Standard Bank, said the growth in the market for loans for these houses over the past two years has been  ­“phenomenal”.

It is certainly no secret that the housing market has remained relatively flat for the past five years and the Absa house-price index in April showed that values for homes of between 80m2 and 400m2 were even in a state of deflation. But Lightstone Property reported that houses in the mid-value (R250000 to R700000) category in October last year showed growth of 6.6%.

According to Nkosi, at the top end of the affordable housing spectrum, clients would qualify for a bond of R550000, which would probably buy a three-bed, two-bath, freestanding unit of 45m2 on a 200m2 stand. At the lower end, R300 000 would buy a two-bed, one-bath unit on a 130m2 to 160m2 stand.

Samson Moraba, the chief ­executive of the National Housing Finance Corporation, said the National Credit Act (NCA), which was introduced in 2007, had protected consumers from unprincipled lenders, but the corporation has also noted a higher rejection rate for affordable mortgage finance since the Act came into play.

Sustained lending
The corporation is an agency under the department of human settlements that facilitates increased and sustained lending by financial institutions to the affordable housing market.

“[The NCA] has impacted negatively on the supply of mortgage loans, especially to low-income households which have no liquid savings for down payments towards reducing the loan-to-value ratios,” said Moraba.

But this year the government has taken aim at the affordability issues that plague this segment of the market. In his state of the nation address in February, President Jacob Zuma announced a R1-billion gap housing guarantee fund for those who earn between R3501 and R15 000 a month but cannot access affordable housing or home loans from banks. Such applicants would be able to obtain a housing subsidy of up to R87 500.

“We can satisfactorily state that, following consultations with banks and other financial institutions, the much awaited finance-linked individual subsidy programme was introduced to the market in record time in April and implementation is on course towards assisting households earning up to R15 000,” Moraba said.

Mortgage-development insurance, a form of credit insurance, is expected to be launched in October this year. Moraba said the Mortgage Default Insurance Company, another state initiative, would act as a third-party guarantor that would review the underwriting and mortgage terms offered to a borrower and, in exchange for a premium, would agree to pay a lender a portion or all of the losses incurred if a borrower failed to repay a mortgage.

The demand is there
Standard Bank holds the biggest share of the market and finances one in three affordable houses in South Africa. It now has more than 800 000 such bonds on its books.
More bonds had been granted over the past year than before the financial recession, Nkosi said. “Banks’ appetite is growing and also, obviously, the demand is there,” he said.
There is a backlog of an estimated one million houses, according to First National Bank.

Gauteng is the largest market simply because of the size of the population, and areas such as Protea Glen outside Soweto are experiencing a major surge in this kind of development. Johannesburg’s inner-city rejuvenation project is also resulting in more affordable housing going up for sale, and development is also increasing around mining areas across the country.

But thin or nonexistent credit records remain a problem, although Standard Bank is finding ways around the usual formalised channels.

“This is a growth market, but also we have realised we have to do things slightly differently and better ourselves so that we can provide the appropriate offering,” Nkosi said.
“We look at the combined household income, at how the rest of the family contributes and at the expenses. We consider all those factors. It is all part of evolving to see how we can do things differently.”

Prime plus
Nkosi said most of the bonds granted by Standard Bank for affordable homes were 100% bonds.

“We are taking a higher risk and are okay with doing so. We have to play our part to house as many people as possible.”

Nkosi said the average interest rate offered to homeowners in this category was prime plus 1%, but this was related to individual risk profiles.

Marius Marais, the chief executive of FNB housing finance, said the interest rate typically ranged from prime plus 1% to plus 3%.

On the prevalence of 100% bonds, Marais said: “You find people in this market just don’t have the 10% deposit.”

Rather than encouraging customers to take a loan with a microlender, banks need to think about how to provide the total package. But quality and value for money are not negotiable when backing these developments, and location and transport hubs also remain an important factor, Nkosi said.

As incomes increase, homeowners are frequently choosing to put money into their homes and save interest in the long term.

But Nkosi said education is needed about how to prepare for the future, such as on the importance of having a valid will and investing in life insurance, so that families do not become destitute if the breadwinner dies.

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