NCA 'nothing to fear' say banks

Although they are expecting a slowdown in mortgage lending over the next 12 months, SA's major banks say there will be no shortage of demand for property in that time and that the residential market is set to remain buoyant as a result.

Bank representatives told delegates to the Homenet annual conference recently held in Gaborone, Botswana they were resigned to the fact that higher interest rates and the tougher lending requirements of the National Credit Act (NCA) would take a bite out of home loan lending for at least the next year.

The major banks all raised their "base" rate for home loans to 13 percent this month following the SA Reserve Bank (SARB) announcement of a 50 basis point increase in the repo rate to 9,5 percent.

Meanwhile the NCA is also making it harder to get credit to buy a home. The provisions are such that banks may simply not be able to approve home loans for would-be borrowers that already have heavy repayment commitments on credit cards, store cards and HP agreements.

"So we expect a tough 12 to 18 months," said Nedbank spokesman Martin Schullheiss, "in which the growth in mortgage advances, currently running at around 28 percent a year, could fall substantially."

First National Bank property strategist John Loos also noted this month that the latest figures available from the SARB show that the growth in total mortgage advances (outstanding and new) had already fallen from 27,8 percent in March to 27,3 percent in April - before the interest rate increase and introduction of the NCA.

Now, he says, he expects the growth in the value of outstanding mortgage advances to slow to 17 percent a year by the end of 2007, with the growth in new advances showing a similar decline a few months later.

The Homenet delegates heard, however, that this does not necessarily mean that the actual number of home sales will drop in the same way. Many potential buyers will not leave the market but will decide instead to buy smaller, cheaper properties, for example, or to pay a bigger deposit and apply for a smaller bond.

In short, there is unlikely to be a noticeable decline in the demand for homes.

Absa home loans CEO Gavin Opperman said: "Despite the increase in interest rates and the downward house price growth trends recently, it is accepted and supported by all sectors that residential property is and will remain a sound means of wealth creation.

"In addition, given the slowdown of property prices and projected regain in momentum next year, 2007 remains a good time to buy property.

"As for the NCA, we view it in a positive light and believe that if all credit lenders adhere to the rules and regulations, it will lead to the upliftment of the property industry, and will ultimately promote and develop the entire economy."

Indeed, said Standard Bank spokesman James Cullen, bankers were agreed that the major effect of the NCA would be to lead to more transparency in lending and that this would ultimately support consumer confidence in the property market.

Such confidence is then likely to be further underpinned by economic growth, a drop in interest rates expected by economists towards the second half of next year, and the build up towards the Soccer World Cup in 2010.

Also speaking at the Homenet conference, futurist Guy Lundy noted that despite the recent increases, SA was still in a low interest rate environment compared to 1997 / 98, when the mortgage rate shot to 25 percent.

What is more, he said, a massive increase in spending on infrastructure to redress the backlogs of the past as well as to prepare the country for 2010, would put some R400bn into the economy and create thousands of new jobs, which was bound to raise housing demand even further.

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