Mortgage taps remain closed

Johannesburg - More residential property players have joined the chorus urging banks to relax lending criteria to homebuyers, following last week's SA Reserve Bank decision to keep interest rates unchanged.

Prominent real estate agents including the likes of Pam Golding Properties (PGP), ERA South Africa and Vered Estates as well as mortgage originator ooba have called on banks to lower their loan-to-value (LTV) requirements to help lift the housing market out of its worst slump in decades.

Latest research data from ooba show that the average deposit (as percentage of purchase price) required by banks surged to 22.6% in May 2009, up from 14.4% a year earlier.

Vered Estates MD Jonny Novick said the 450 basis-point cut in interest rates since December 2008 holds little benefit for potential homebuyers if the country's lending institutions continue to apply an "ultra conservative" approach to home loan applications.

"While we understand the risks that the country's lending institutions face in the current economic environment, banks need to come to the party to provide a much-needed impetus to the property market."

PGP CE Andrew Golding echoes a similar sentiment. "The recovery of SA's residential property market is dependent on the banks injecting more liquidity into the market."

These requirements should stay

However, banks are unlikely to be swayed much by industry appeals to relax lending policies. Spokespeople for both Absa and Standard Bank, the two biggest players in SA's R700bn home loan market, told Fin24 that their respective lending criteria will remain unchanged.

Luthando Vutula, managing executive of Absa Home Loans, said in the current climate of falling house prices, negative economic growth and rising unemployment, it will not make sense for Absa to relax its lending criteria anytime soon.

Absa's LTV criteria for home loan applications for all housing transactions in the middle and upper end of the market remain as follows: deposits of 15% required from existing Absa clients and 30% deposits required from non-clients.

Vutula said the only homebuyers who can still qualify for 100% loans are those at the lower end with a monthly household income of up to R11 000. These applicants can typically afford to buy a house priced up to R300 000.

Standard Bank requires a 5% deposit for purchases of up to R300 000 (existing and new clients), while existing account holders are expected to pay a 10% deposit on homes priced between R300 000 and R2.5m. A deposit of 15% applies to non-clients in this price class, while all clients (new and existing) are required to pay a 20% deposit for homes priced above R2.5m.

Vacant land clearly poses a bigger risk than completed homes in the current downmarket, with most banks requiring deposits of up to 40% for vacant land purchases.

- Fin24.com