Banks can now come to the party now that interest rates on loans are affordable, says APKF MD

The recent 0,5% further drop in interest rates – the sixth since the high point of 15,5% reached in June 2008 – is welcome and will go a long way to stimulating the residential property market – but it has still to be realised that right now the main holdback affecting house sales remains the banks’ reluctance – or inability – to give mortgage bonds at anything like the previous or even the desired rate even though recent changes to bank criteria for lending could and should speed up the rate at which loans are issued.

This was said this week by Lanice Steward, MD of Anne Porter Knight Frank, the Claremont headquartered estate agency that has recently expanded onto the Atlantic Seaboard.

Referring to a table of interest rate changes dating back to 1948, Steward said that it is significant that growth rates in the Cape Metropole residential property had often been “quite spectacular” even when interest rates had been high.

“In 2003 we saw a year on year growth rate of 30,3% in house prices despite an interest rate of 15,5%. In 2006 we had a 16,6% year on year growth with interest rates at 12,5% - 2% higher than the current interest rate. Although it is true that maximum growth, as in 2005 when the rate was 10,5%, tends to be fostered by low rates, the market has over the years time and again done well with above 12% interest rate.

“If, as most people believe, a genuine revival in the property sector is now desirable both for humanitarian reasons and to stimulate the economy, it is imperative that the banks ease up further on their lending criteria.”

In Anne Porter Knight Frank’s deals, catering, as they do, for the upper and upper middle bracket buyers, obtaining mortgage bonds – at up to 95% of the property’s value – has not been too difficult recently, said Steward, but reports from colleagues serving the lower middle and lower bracket homes have indicated that in some areas less than 50% of bond applications are proving successful.

“I am not suggesting a return to the bad old pre-National Credit Act days when credit was often far too easily available but it has to be recognised that everything now depends on the banks being able to go forward on the lines that they have already proposed for the lower income groups. Now that we are back to 2005 interest rate levels, it would not be unreasonable to hope to achieve, say, 10% year on year growth, a mere fraction of the value growth of some previous years – but this will depend almost entirely on how sincerely and how actively the banks ease up on the lending criteria.”

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