Home loans depend on prices

Johannesburg - Capital for banks has become a scarce resource.

It has become increasingly expensive for banks to get capital to fund their asset books, especially those assets requiring long-term finance, such as mortgage loans.

This was the reaction on Monday by Gavin Opperman, Absa's group chief executive for securitised loans in the retail division, to the prevailing debate in which banks are being accused from every quarter of smothering the housing market with their lending criteria.

There are currently two issues being debated: banks' stricter lending criteria, in which prospective homebuyers are required to put down a deposit of 10% to 20%, and the interest rate at which banks are advancing money to clients.

Although the prime lending rate is currently 12%, this is not necessarily the rate that all clients pay. Historically some clients secured loans at rates of prime minus two, which no longer offered as an option.

Sean O'Sullivan, head of sales and marketing at First National Bank (FNB), says that in the current market of declining house prices, it is sensible to advance loans more conservatively.

As far as the stricter lending criteria are concerned, both reckon that this is not the time to relax them. "We are still applying a conservative lending strategy because of the falling house prices, but at the same time we are keeping a close eye on the market for any signs of improvement," notes O'Sullivan.

Opperman believes that since the residential market has not yet turned, banks are currently in no position to review their lending criteria.

"As soon as there are indications of improvement, we want to be in a position to review our lending policy and advance money more aggressively than currently."

- Sake24.com

For more business news in Afrikaans, go to Sake24.com.