The South African housing market is a declining market even with an inflation rate of 6,7%. The chance of an economic stagflation and subsequent mass unemployment is big, so the reasons for the decision to borrow 110% to low income earners must be a desperate attempt "to do some good" for the black population. It is also called "political point scoring". In 5-10 years time the borrower will be completely under water with an enormous loan. The pressure from consumer organisations and Unions is on and so the banks are taking enormous risks but doing a disservice to the borrowers. Who are they kidding? The ONLY winner will be.....the mortgage commission agent of the bank: the borrower is under water, the bank has to partially write off the loan, the government might have to bail-out the banks and the tax payer foots the bill.
The good times will not come back unless we stop the denial, which is: spend within your limits.
An average house in the low income bracket should not cost more than 3,5 times the average income of the people in the same bracket. This seems to be an internationally accepted "rule of thumb". So if the maximum income to qualify for a loan is R 11.000 the house should not cost more than R 40.000 as only then there is more or less equilibrium in the market. I'll bet you the houses with subsequent mortgages will go for between R 100-150.000. Income will not go up so the house prices have to come down. Absa is keeping the bubble alive. The eternal losers: the low income earners.
South African Absa defrauds low income earners.
MORTGAGES of 110% are now available to low income earners, ABSA said today as it adjusted its lending criteria.
“Absa has become the first bank to provide relief to low income earners by offering 110% bonds with a monthly income up of to R11,000,” the bank said in a statement.
“The turn in the economic cycle is becoming evident and as such we need to review our customer offerings.
“Although the South African economy still finds itself in recession after contracting for three consecutive quarters up to mid-2009, it is important to note that to date, the interest rates have been reduced by 500 basis points (bps) since December 2008 and are projected to drop by a further 50 bps later in the year,” said Luthando Vutula, managing executive of Absa Home Loans.
He said this meant consumers were experiencing relief and with lower inflation and household payments there should be a notable reduction in loans in arrears. “In light of this, and a slight improvement in property market, our loan to value caps will be aligned with the prevailing market conditions.” He said ABSA would continue to weigh up the consequences of its decisions and the impact these could possibly have on its customers.
The bank added that it was providing up to 95% mortgages to Absa customers who need a bond of up to R1.5 million if they used Absa internal channels.
A mortgage of 90% was offered if they used external channels such as mortgage originators.
Houses from R1.5 million to R2.7 million would still require a 10% deposit and houses more than R2.7 million a 15 percent deposit,” Vutula said.
Vutula said it was important to note that the normal lending criteria would still be taken into account. “We encourage all of our customers to remain astute and discuss their home loan needs with us.
“It is only through meaningful interviews and accurate affordability analysis that we will be able to establish a sound needs analysis and offer the best solution,” he said.
Residential Repossessed Assets (RRA) and Absa distressed properties would also be available for customers to consider. “Absa customers will get 100% on these home loans in order to make it possible for more of our customers to own their own homes,” he said.
At the beginning of the year Absa reviewed and revised all of its agreements with mortgage originators, Vutula noted.
“These agreements remain unchanged,” he said.
Despite lower interest rates, the economy was expected to remain under a lot of pressure until the end of the year, which would continue to impact employment, household income and the property market, he said.
In view of these developments Vutula encouraged consumers to keep expenses under control and look to buy properties that were affordable, based on their financial position.
“When there is extra cash available it’s easy for people to be tempted to splurge, however, let’s encourage our customers to remain prudent and save a few rands for that much talked about ”rainy day”.
He added that ABSA continued to encourage home owners to deposit surplus cash into their mortgages.
Earlier this month Standard Bank said it had recently increased its risk acceptance rate in its home loan, and credit card divisions.