Home loans up as banks relax lending rules

At the height of the property boom in 2006, South Africa’s four major banks were approving an average of more than 30 000 new home loans every quarter.

During 2009 this number had dropped to well below 8 000 as banks tightened lending criteria considerably in response to the global financial crisis, as well as factors such as interest rate increases, high household debt ratios and the effect of the National Credit Act.

However, with sharp cuts in the repo rate over the past couple of years, the prime lending rate has dropped to below its 2006 level and, according to property analysts, all indications are that banks have been slowly relaxing their lending criteria again. The result is that the number of new home loans approved is on an upward trend again, having increased by 10 percent since 2009.

Mortgage Plus recently completed a study of the number of home loans approved per quarter and loan-tovalue ratios of the four major banks – Absa, Standard Bank, FNB and Nedbank – from 2006 to the first quarter of 2011, to assess whether the strict lending criteria applied over the past few years since the economic crisis have eased.

“There is a slow and cautious recovery and there has been a slight drop in the first quarter of 2011, with fears of a double dip recession being mooted. But an upward trend in new lending for the residential market indicates that banks are developing more of a desire for risk,” says analysts .

“Boosting indications that lending criteria have relaxed is the fact the loan-to-value (LTV) ratios are on a similar upward trend. After dropping from an average for all banks and all market segments of almost 90 percent in 2006 to just 79 percent in 2009, they have climbed back up to an average of 82 percent since the first quarter of 2010.”

She says there is a significant difference in LTVs, however, once these are assessed in terms of market segment. Poorer households are accessing home loans of over 90 percent LTV whereas the LTVs for the comfortably off and super-wealthy are around 80 percent and 75 percent respectively.

“A number of factors account for this trend. The first is affordability – it is often simply the case that comfortable and wealthier buyers have cash to put down deposits and have often sold previous homes at a profit, whereas those buying in poorer areas may not have savings or the profits from the sale of a home to invest.

“However, it should also be considered that much of the bad debt on the banks’ books after the downturn in property values and rising interest rates caused many homeowners to default, came from the wealthier sector and higher-priced homes. Also, there has been pressure on the banks to contribute towards South Africa’s low-cost housing backlog by making home loans more accessible to lower income earners.

“There has been comment from the property sector that the strict lending criteria are a major factor constraining house price growth, and that in light of low interest rates this approach may be too conservative – creating something of a buyer’s market,” says Ivins.

However, she says, there is clearly light at the end of the tunnel.

“Interest rates are low, home loan accounts are performing better and lending criteria should become more lenient, which should stimulate prices and demand as household debt comes under control and banks resolve the distressed property sales and properties in possession still on their books.”

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Johannesburg – Not only are house prices improving every month; the numbers of houses sold and home loans approved are steadily rising.

New statistics from banks, estate agents, mortgage originators and house-price indices showed the housing market has begun to feel the positive effect of the five-percentage-point interest-rate decline since December last year.

The relaxation of banks’ lending criteria, which means that 100% home loans are again available, is also giving momentum to the demand for accommodation.
Luthando Vutula, the managing executive of Absa Home Loans, said there is no doubt that the housing market is resurrecting.

“From August to September the number of applications for Absa home loans increased by 18%.” He said house prices reached at auctions are also 10% to 15% up.

Rudi Botha, said the number of home loans approved between August and September rose by 50%.

Adrian Goslett, assistant registrar of Re/Max Southern Africa, said September was the group’s best sales month this year, with property sales totalling just under R900m.

He believed the market is well on the way to recovery because consumer sentiment has dramatically improved. “Those wanting to buy a house should consider it now; interest rates are lower and finance more readily available.”

Coastal areas

Coastal areas, which were heavily impacted by the downturn in the housing market, are also seeing a revival.

The Eastern Cape office of Pam Golding Estates (PGE) in St Francis Bay notched up R35m in sales between June and September, the highest quarter in recent years. “This is double the sales turnover of the corresponding period last year,” reported Richard Arderne, PGE’s area principal.

On the house-price front a noticeable increase is evident in the different indices. First National Bank’s house-price index showed an annual decline of 4.4% in September, considerably better than the revised 6.5% for August. At this rate the decline in house prices should be over by early next year.

Lightstone’s house-price index indicated prices rose for the fifth successive month in May. Nominal house prices were 0.15% better in May than in April, although they were still 1.1% lower than in May last year.

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