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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Don’t be afraid to negotiate home loan rate

Home loans are currently hard to come by – but that should not prevent qualified borrowers from negotiating for a better interest rate.

Negotiating a loan at even one percentage point less than the prime lending rate can save borrowers a substantial sum over the life of the bond.

“In the current economic climate, however, many borrowers – and especially first-time buyers – are just so grateful to qualify for a home loan that they don’t want to rock the boat.”

Qualified borrowers should keep in mind, he says, that the reason home loans are hard to come by is that many prospective borrowers don’t make the cut in terms of the stricter lending criteria stipulated in the National Credit Act. “Banks therefore have to turn applicants with risky credit histories down to protect their own interests.

“This means that if you do qualify for a bond in terms of the Act, you are a sought-after prospect for banks and you should use this opportunity to your advantage by negotiating the best possible terms.”

Schultheiss explains that the repayments on a 20-year bond of, say, R1m at an interest rate of 10% will cost the borrower R9650 a month. Negotiating the rate down by one percentage point would save the borrower about R650 per month. “That’s R7800 a year or R156 000 over the life of the bond. Put another way, a saving of R156 000 represents more than 15% of the initial purchase price.”

He further advises homeowners who negotiate lower rates to consider paying the resulting savings into their bond accounts. “The total saving on interest in the example above would come to more than R220 000 if the bondholder paid the R650 ?saving’ into his bond account each month. On top of that, he would shorten the life of the bond to about 16 years.”

Meanwhile first-time buyers who are unsure of their ground when it comes to bargaining with banks are especially advised to make use of the services of mortgage originators, who will source the best home loan package available to each borrower at no charge.Get the best rate – Apply for a Home Loan to All 4 Major Banks in 1 Go 4 Free

By choosing Mortgage Plus for a loan, you will get that continual service to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za