National Credit Act Prevents Property Market Crash
The South African home loan market is faced with many challenges, including the US home loan crisis, the new National Credit Act, rising interest rates, the deeds office strike and the winter seasonality. But not even all of this could cause a total standstill of the property market in our country.
According to Jack Trevena, MD of bond originator BondExcel, the US home loan market is different to the South African home loan market. In the US some sub-prime lending has become a multibillion-dollar industry that is now spinning out of control. Sub-prime lending is an unusual and rather unsuitable term for home loans granted to individuals who, under any normal credit policy, would never be able to obtain a home loan. Sub-prime mortgage lenders offer a much higher rate than the prime rate and consumers are struggling to keep head above water.
Adjustable Rate Mortgages (ARM) has risen by about 600 percent, and as a result, US citizens who bought a house four years ago will now pay some 600 percent more in interest on a home loan. Fortunately in South Africa, most major banks to not offer sub-prime lending, and there is thus no major product exposure to this market.
The South African market also doesn’t offer bullet home loans, in which only a portion of the capital is serviced over the loan period and the balance becomes due at the end of the loan term; and none of the major banks provide facilities such as deferred repayment, which allows borrowers to start off with small repayments which increase over time, to become larger than normal repayments.
So even though the South African property market has taken a knock and slowed down substantially, experts believe it is nothing to be worried about.
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