The green shoots have roots. That seems to be the upshot of reaction to Standard Bank’s announcement this week that it is relaxing its lending criteria and will be offering 100% home loans on certain purchases up to R1,5 million.
Previously property pundits were sceptical of a residential market recovery saying the green shoots had no roots.
While Standard Bank’s offer only applies to clients of property priced up to R1,5 million, it has generated enthusiasm and hope in a stressed market.
“Hats off to them,” says an upbeat Simon Stockley, the chief executive officer of home loan provider Integer. “It’ll help drive positive sentiment and facilitate recovery, so this is to be welcomed.” Stockley says the move is part of a process of general stabilisation and recovery. “Recent FNB data supports the view that the market has bottomed out – or at the very worst the rate of property price decline has slowed – and we’re beginning to see pockets of recovery emerging. It is early stages, but the signs are positive.”
Liquidity remains tight for all lenders, however, and all are likely to remain cautious in the face of increasing levels of consumer debt and distress, he says.
Luthando Vutula, the head of Home Loans at Absa, says that in the affordable housing market, Absa has already started providing clients with incomes up to R11,000 with home loans of 110%. “So this isn’t really anything new. What’s important to us is that we are able to provide a sustainable value proposition: loan-to-value ratio (LTV) is only one factor. Price and service are also part of a bank’s value proposition. While we’re very positive about the economy, we can’t discount the fact that in July we had negative house price growth of 4.2% and we expect house prices to decline between 3 and 3.5% for the full year.
“Yes, inflation is down and interest rates are down, but jobs are still being shed, so prudent lending is still our cornerstone.”
The move to relax deposit requirements is a positive for prospective homebuyers and for the property market. Over the past four months, the major lenders have begun to relax lending criteria, including deposit requirements.
“ooba has seen a 36% increase in home loans granted from April 2009 to August 2009. In each month from April to August we have seen the first consecutive monthly increases in application volumes since May 2007. ooba also experienced a surge in the number of home loan applications over the same period,” the mortgage originator told Private Property.
One of the biggest drivers of a market recovery is bank lending. ooba said it had recently seen a “definite improvement” in competitiveness between the banks and an increase in approval rates across the board.
“Banks are beginning to target non-bank clients and rate concessions are more aggressive. We have seen a significant improvement in the performance in ooba’s mortgage origination business over the last four months with increases in volumes. We expect continued positive results going forward. Our view is that the market is on the road to recovery,” ooba said.
Economist Doret Els, of financial services company Quantum Wealth, is not surprised that Standard Bank has relaxed its risk criteria. She says that although this move was expected, it’s going to go a long way to support the residential market in years to come.
“The cumulative lowering of 500 basis point in the prime interest rate since December last year has significantly reduced the cost of mortgage loans. House prices have also declined in both real and nominal terms recently. These lower house values combined with lower interest rates and improved willingness from banks to extend home loans will do much to support the residential market over the long term.”
That said, Els adds that it would be premature to crack open the bubbly and go house hunting. She warns consumers to remain cautious, particularly those at risk of overextending themselves.
“Over the short term some risks to the market do exists; including the difficult economic environment and possible increase in unemployment, as well as high existing household debt levels.”
One person who isn’t cheering on the banks is The Bond Man’s Gary Peterson. “Whilst I think it’s an important move to restore confidence in the property market, I don’t agree with the culture that allows people to acquire property without putting down a cent of their own money. I am surprised that this free-for-all has returned to our mortgage industry so soon after the practice was withdrawn by all banks. We just need another dip in the property market and first-time buyers will be sitting in a negative equity situation.”
Peterson said he would have preferred to see a bank offering a preferential interest rate to first-time buyers, and making property more affordable that way, as they do in the United States.
Standard Bank previously required a deposit of 5% to 10% on property purchases valued up to R1, 5 million. Yesterday it said it would offer 100% loans on properties up to R1,5 million and 104% on R1 million purchases to first-time homeowners.
According to media reports, Standard Bank said the advent of the National Credit Act (NCA) in mid-2007, coupled with the global banking crises prompted SA banks to lower LTV requirements on mortgages to anything between 60% and 95%, depending on price, type of property and location.
Standard Bank said although the economy was still in distress, there were enough positive signs to increase its risk appetite.