Banks look to boost lending in the affordable housing market
FNB and Standard Bank have both launched products that they hope will help remove barriers to home ownership.
With interest rates favourably low, there has never been a better time to get into the property market and two of the big five banks recently launched offerings to give you easier access to property loans.
Dr Andrew Golding, chief executive of the Pam Golding Group, says despite the lockdown regulations in place, his company is still seeing a demand for correctly priced homes across price bands – which vary according to location and market demand. It is hoped this activity will gather momentum as economic sentiment improves.
“The ongoing demand for homes is particularly evident in the lower end of the market, with a roll-on effect upwards, and further fuelled by buyers capitalising on opportunities to make sound, value-for-money acquisitions,” he says.
Golding notes that although the third wave of Covid-19 created an increasingly challenging trading environment, the market continues to respond well, especially to properties that are correctly priced – a trend evident across suburbs as well as in estates.
FNB’s collective buyer solution
In what it calls an industry first, First National Bank (FNB) recently launched a property lending solution that will allow you to buy residential property as a collective with up to seven other people.
Raj Makanjee, the chief executive of FNB Retail, says although interest rates are at record lows, the global pandemic has made it increasingly difficult for aspiring homeowners to afford properties.
Lee Mhlongo, the chief executive of FNB Property Finance, says FNB records show that when a customer considers purchasing a property, they tend to forget the additional costs such as registration costs, transfer duties, and sometimes a deposit. These are more barriers to purchasing.
“The advantages of buying a property collectively with friends and family means that customers are now able to share the costs equally to make the purchase and the process affordable.
“Another advantage is that customers will also enjoy reduced monthly repayments and personalised rates,” he says.
How it works: To kick-start the home loan application journey, you can submit your application via the FNB App on nav »Home. This permits up to eight applicants, including applicants who are married in community of property (COP), to be added.
If there are more than eight applicants, you can make your application at an FNB branch, which will accommodate applications for up to 12 people. The bank will review and assess each applicant’s credit profile, including the nature of their income, expenses, household size and affordability.
You can either deposit funds directly into one transactional account and run one debit order off that account or you can request a stop order payment from their transactional accounts.
Vanashree Naidoo, head of FNB’s secure lending cluster, says there is also a split billing function, which means that multiple parties can make specified contributions on different dates, depending on when they get their salaries.
What you need to know: Read the terms and conditions of any loan agreement carefully before you sign.
Note that you are jointly and severally liable for the debt. This means that, if one of your buying partners defaults on the loan, this will then reflect on the credit profiles of all the people who have entered into the collective loan agreement.
Naidoo says credit life insurance will cover the loan if a collective buying partner is retrenched or dies.
“As the balance on the loan amount decreases, so do the premiums on the credit life policy,” she says.
She also notes that you could put the property into a legal vehicle such as a trust, where all the applicants of the collective loan then have a participating share in that trust.
“A trust also means that the asset is ringfenced for tax purposes, and you could reduce your tax liability that way.”
Standard Bank’s social bonds
Standard Bank listed two social bonds on the JSE that will finance borrowers looking to buy affordable housing, with a focus on female borrowers.
This will target households with a gross maximum monthly income of R26,100. The issuance has already raised R2-billion for mortgage lending.
If you want to invest in these bonds, you will find them trading under the JSE codes SBSS01 and SBSS02.
The social bonds have been listed on the JSE’s Sustainability Segment, established by the Johannesburg-based bourse to assist companies to raise debt for green, social and sustainable investment projects.
Sam Mokorosi, head of origination and deals at the JSE, says the strong interest in social bonds – reflected by their 2.3 times oversubscription – is indicative of a desire by both South African corporates and investors to balance efforts in creating affordable home ownership with a special focus on empowering women.
“Standard Bank’s initiative will help advance women empowerment, promote gender equality and inclusive economic participation. These bonds will contribute to rolling back the housing backlog across our country, which is estimated at 2.6 million units, with a focus on enabling women to build an asset base,” Mokorosi says.
Kenny Fihla, chief executive of Standard Bank Wholesale Clients, says this is the bank’s first sustainable issuance in the local market and its first social bond.
“As a bank and issuer, we are serious about sustainability. We also perceive the ‘S pillar’ within ESG [environmental, social and governance] to be critically important, particularly in emerging markets. To be able to deliver a social bond that will have a positive impact on people across the country is quite momentous.”
How it works: Sasha Cook, head of investment banking for the Western Cape and executive of sustainable finance at Standard Bank, says the proceeds of the bond issue will continue to support mortgage lending in the affordable housing market with a focus on women borrowers.
There is, however, no specific programme for borrowers to access this finance.
You would make a normal home loan application and the allocation of bond proceeds will be directed towards applicants who fall under the “affordable housing” category with a maximum household income of R26,100 a month, as set out by the Financial Services Charter.