Mortgage lending at ‘pathetic levels’
BANKS ARE UNWILLING TO GIVE YOU A MORTGAGE UNLESS YOU CAN PROVE THAT YOU DON T NEED A MORTGAGE
South African lenders have shrunk residential mortgage loans to households by 4.8% in real terms in the 10 years to 2018.
Stringent lending criteria after the subprime mortgage bubble in the US and the introduction of the Consumer Protection Act have made financial services providers overly cautious, resulting in what Stanlib chief economist Kevin Lings calls a “pathetic” mortgage lending rate in the country.
At the Investment Forum in Sandton on Wednesday, Lings called the rate at which banks are lending to people to put a roof over their heads “pathetic” and it’s easy to see why.
According to the Reserve Bank’s BA900 economic return data, financial institutions gave R10.9bn in residential mortgage loans to the household sector in 2018. This equates to a 40% nominal growth in residential mortgages to households since 2008 when these institutions lent R7.7bn to consumers.
It’s a huge increase, until you factor in house price inflation over that period. The FNB house price index averaged 3.9% in 2018. However, in the five years leading to 2018 some years had higher price inflation. Even when you inflate the R7.7bn advanced in 2008 by an average house price inflation of 4% over the past 10 years, or discount the current R10.9bn by 4%, calculations show residential mortgages to the household sector contracted by 4.8% from 2008 to 2018.
“Banks are unwilling to give you a mortgage unless you can prove that you don’t need a mortgage,” Lings said.
He pointed out that banks were more willing to offer unsecured credit to people “to go shopping than to give a young fellow a mortgage loan to buy his first house”. Personal loan advances have been growing at an average rate of 12% per annum in SA.
Private housing development is one of the five pillars that Lings demonstrated could help grow the SA economy a little faster than the measly 0.8% recorded in 2018, or the 1.2% projected by the IMF for 2019.
Together with improving the ease of doing business and boosting the tourism sector, private housing development could help lift the business confidence index to at least 50 index points, said Lings.
At this level, SA’s GDP would have leap-frogged to 2% last year instead of 0.8%, he said.
RMB/BER data shows that business confidence deteriorated from 45 index points at the beginning of 2018 to 31 by the end of the year. The Merchantec CEO Confidence Index shows that CEO confidence plunged to 43.3 index points in the first quarter of 2019.
The challenge is that the private sector sees affordable and social housing as an area reserved for the government to intervene, said Lings.
He acknowledged that there can be difficulties in the development of affordable housing, but said it is in the interest of the public sector to find solutions to these challenges.
“Anything that gets housing developed will help to grow this economy. SA is looking for a catalyst to inspire more confidence in the country and I certainly think that housing serves that purpose. There are huge numbers of people in this country that earn too much money to qualify for an RDP house but earn too little money in order for the banks to be that interested in financing them.”
The problem is further compounded by the fact that even among those who do qualify for mortgage loans, lending institutions are cherry-picking.
According to the latest consumer credit market report by TransUnion, 1.6-million of the 1.8-million active home loan accounts in SA are held by individuals with super-prime credit scores of between 822 and 917.
Banks cannot take on excessive risk by lending to people with compromised credit records. It is after all not their money that they are lending, but that of depositors. But banks generate substantial profits from transactional revenues. A case can be made for setting aside a portion of these profits to fund more affordable houses.
Long-term insurers and retirement fund administrators are also sitting with unclaimed benefits in excess of R43bn.
According to Tiaan Kotze, CEO of Liberty Corporate, some of these benefits are “unresovable”. That is, the likelihood that they will be allocated to anyone is as good as zero. He said the industry is having discussions about how to put these funds to good use. It could always consider affordable housing.
However, the challenge is not only finance. Supply of affordable housing, especially in inner cities, also needs to increase.