Market indications are that the banks are adopting a more accommodating approach to approving home loans.

And such a change is long overdue in that the tight restrictions and unofficial moratoriums applied by banks to home loan applications have undoubtedly impacted on the property market, says Gerhard Kotzé, CEO of the ERA South Africa property group.

“The banks’ stance in this respect is understandable, given the current economic conditions, property repossessions and the obvious need for caution in respect of a major share of their lending books where consumers have been increasingly under financial stress.

“But coupled with the strict application of the National Credit Act, bond finance has become increasingly difficult to obtain with perhaps one in three applications currently being approved.

“Reserve Bank governor Tito Mboweni has been meeting with the banking sector purportedly to discuss reducing the level of lending rates relative to the prime lending rate set by the Reserve Bank. Traditionally this gap has been set at 3,5% but indications are that Mr Mboweni would prefer it to be reduced.

“Whether that will happen is a moot point. However all the pointers are towards a more accommodating policy on home lending as such, a change that would certainly help to revive the ailing property market.”

Meanwhile, he says, there is much discussion about whether alternative sources of home finance should be made available to South Africans – subject to strict controls by the authorities.

“I’m not suggesting the market be thrown open willy-nilly to all-comers but on a highly selective basis there’s no reason why sound new players could not enter this business space and add to the competitive environment in the process.

“The idea is not to cast caution to the wind and any new entrants to the market would have to satisfy both consumers and the authorities that they were capable of backing up their lending books and were actuarially soundly structured to meet their commitments.

“The benefits for the consumer, however, would flow from greater choice, stronger competition and more innovative home loan packages, all of which would change the face of the home loan market in South Africa.”

Article from: www.era.co.za