According to First National Bank (FNB), a question often asked is ‘to what extent mortgage lenders still provide 100 % loans’. The bank noted that the answer remains ‘more often than you think.’
“The mortgage industry’s total volumes are a far cry from the height of the pre-2008 boom, but 100%-109% home loans are most common of all the loan-to-purchase price bands,” stated FNB.
The bank explained how they arrived at their conclusion by using deeds data for transactions embarked on by individuals. “We have estimated the Loan-to-Purchase Price (LTP) on each transaction identified, and then placed each loan within an LTP Band, then estimating the number of loans in each LTP band and their percentage of the total number of loans.
“We find that the 100%-109% LTP Band, i.e. those homes where the bond registered is from 100% to 109% of the home transaction value, were estimated at 41.5% of the total number of bonds identified in the second quarter of 2016. Most of these would be 100% exactly, but a minority do venture above 100%,” FNB explained.
They added that this percentage seems to be lower than the 43.1 % ‘multi-year’ high attained in the final quarter of last year.
Abas also weighed in: “South African consumers are under pressure due to increasing interest rates, high debt levels (debt to disposable income 76.6%), low economic growth, high unemployment and high inflation. The pressure on affordability of the instalment combined with the requirement for a deposit places additional pressure on the consumer.”
Growing in the market
From an Absa Home Loans perspective, their growth strategy is one of not opening taps in order to grow their shares, but rather to look for opportunities in the market to grow in certain segments where there is low risk business.
“Our understanding of the market combined with tactical response has improved considerably in the current environment. We therefore remain very selective of the customer risk we are targeting, as well as targeting lower LTV business than the rest of the market. Although we still grant a sizable proportion of 100% loans that do not require a deposit, most of our loans still require the customer to put down some sort of saving or security to reduce the risk of the transaction,” added Absa.
Their focus remains on sensible lending, and with this in mind the consumer could be of the opinion that it has become increasingly difficult to secure finance today than 10 years ago per say.
