With banks shifting towards unsecured lending, can the average South African still secure a home loan?
By Nicolette Dirk, finance writer, Justmoney.co.za
According to Gary Palmer, CEO of Paragon Lending Solutions, many home owners often have to either sell their property at a lower value, or miss out on purchasing a new property altogether because they are unable to put down a substantial deposit in time.
“The cost of home finance in South Africa has increased, and with difficulties in managing personal debt, many potential property buyers do not have the additional finances to purchase a new property before the sale of an existing property,” said Palmer.
He added that this situation is further compounded by banks taking more time to complete a loan due to their focus on unsecured lending. This has made long-term loans, held by the bank, more expensive.
BMI Building Research Strategy Consulting principal consultant, Llewellyn Lewis, recently told iol.co.za that the shift by banks away from mortgage finance towards unsecured lending has reduced the ability of the average South African to own a house.
Lewis added that while there had been a boom in the numbers of the black middle class, the simultaneous shift in banking behaviour meant this had not translated into a proportionally greater ability for black householders to buy property.
Shortened terms on lending
According to Palmer tighter regulations have forced banks to shorten the terms on their lending books and this has added a significant time burden to the process of applying for a loan, sometimes taking longer than six weeks.
He added that because of banks’ conservative lending practices and slow turnaround times, many property buyers are not meeting their deadlines to issue guarantees for the purchase of properties.
“If they are in the position to pay a deposit on a new property, they stand to risk losing their down payment if the loan agreement isn’t finalised within the timeframe allocated to secure the purchase.
Should the deal fall through and the seller then sells the property for a reduced value elsewhere, the defaulting purchaser may be liable for the shortfall,” said Palmer.
What are your options?
Palmer advised home owners and property buyers to seek advice from an asset-backed lender who specialises in the property industry and who can assist with, among others, advice, costs analysis, bond origination and can also liaise with the banks with terms of the long-term loan and ensure that they have the necessary paperwork in order.
“It is also essential that the homeowner is kept abreast of the movements within the market to ensure that they match the timing of their sale with the purchase of their new property,” said Palmer.
