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Buy property you can afford

13 Jan 2014

South African banks are increasingly looking to the affordable housing sector in a bid to reverse skyrocketing mortgage decline rates.

South African banks are increasingly looking to the affordable housing sector in a bid to reverse skyrocketing mortgage decline rates.

Speaking at the latest International Housing Solutions’ Affordable Housing Conference in 2013, senior bank representatives said affordability was a major concern in the current market.

With homeownership on the decline, as noted in recent reports, banks remained keen to lend.

However applicants were advised to ensure they did not set their sights unachievably high when seeking their first home loans.

Also speaking at the conference was Dominic Adu, chief executive officer of Ghana Home Loans, who said mortgage decline rates in that country stood at an extraordinary 90 percent - primarily because applicants applied for too expensive properties and, if they could not buy them, they would rather not buy at all.

“People want homes they can’t afford,” he said.

And the desire to purchase a more higher-end property than is realistic could also, in addition to other issues such as consumer-indebtedness, explain SA’s high mortgage decline rates, the conference was told.

Nicholas Nkosi of Standard Bank said the biggest reasons for the bank’s current decline rate of new mortgage applications, was credit information and affordability.

“A larger number of clients are being turned down due to their credit information, but affordability is playing a bigger role,” he said.

Nkosi added that while there was significant pressure in terms of delinquency in servicing bonds, this applied across the mortgage book.

“It is positive that delinquency is not unique to affordable housing, and that the affordable housing customer is not performing worse.”

Marius Marais of FNB said the bank’s affordable book stood at about 20 to 25 percent of market share, and that the bank’s decline rates could for the most part be attributed to reasons of affordability.

Representatives from all the major banks agreed that customer education was key, especially in the affordable space, where clients often did not understand the amount of additional spend required when buying property, such as insurance, transfer duties, and rates and taxes.

Soula Proxenos, managing partner at IHS, said it was encouraging that the affordable housing sector was fast becoming recognised for its potential to address challenges in the property market.

“Our approach has always been to be able to provide a quality first step onto the private property ladder, and both the private and public sector are acknowledging the role the affordable sector has to play,” she said.

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