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CAPE TOWN – Absa (JSE:ASA) recently made a big song and dance about its MyHome product, helping those households who earn less than R15 142 a month to buy a property by offering them a 110% bond, no deposit required and all bond costs included in the bond. Is it now the low-income bond market leader and what are the other banks offering in that sector?
A Standard Bank (JSE:SBK) spokesperson referred me to a release it sent out last year where the bank relaxed its credit restrictions, claiming it was the first to do so. The changes it made were specifically designed to benefit first-time entrants into the housing and general credit markets. They were not for the low-income bracket but aimed at those with a solid income but don’t necessarily have a sizeable deposit to put down.
Its Jump Start Bond allows first-time home owners to apply for a bond of up to R1m, to qualify a household needs a combined income of close to R30 000 and monthly repayments will be close to R10 000 a month.
As long as they use the residence they are buying as their primary residence they are able to qualify for a cost-inclusive 104% LTV (loan-to-value). The loan-to-value ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For eg, if a borrower wants R450 000 to purchase a house worth R500 000, the LTV ratio is R450 000/R500 000 or 90% (LTV)).
Standard Bank now allows LTVs of 100% (up from 90-95%) and it has started accepting low-risk non-cheque Standard Bank customers and low-risk non-Standard Bank customers for home loans.
Standards Bank’s Dream Start Bond is more suitable to low-income earners. It is aimed at those earning a single or joint income of between R1 500 and R6 000 a month, excluding housing subsidies or allowances.
First National Bank’s contribution to the low-income bond market is the Smart Bond. This is for applicants earning a monthly household income of R15 000 and below. Those applicants who qualify for the Smart Bond will be eligible for 100% bond finance, with no deposit required.
Nedbank (JSE: NED) also relaxed its lending criteria last year. Whereas for the previous year the bank required deposits of 10 – 20% for new home loans, this was driven mainly by expected declines in house prices, the deposit requirement has now been reduced to 0 – 10%, depending on the risk profile of the client. Clients also have the option to have a five-year fixed interest rate or a variable interest rate. Home-ownership education programme is provided to first time home buyers – for free and the minimum loan amount is R20 000.
For low-risk clients – both existing Nedbank clients and new clients it will lend up to 100% of the purchase price of their new homes. In general, though, it continues to believe that putting down a 5 – 10% deposit is good practice for both the client and the bank, and therefore will continue to encourage clients to do likewise.
While all banks do seem to cater for low-income earners it appears that Absa’s 110% offering is the most effective product targeted at these earners. The fact that borrowers who take advantage of the product receive the added benefit of an HIV/Aids voluntary counselling, testing and treatment programme seems to place the red branded bank as current market leaders in this sector. Absa has also sourced insurance so that should a client fall ill and be unable to work due to an Aids-related disease their home loan instalments will be covered.
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