Any discussion among senior staff in the residential property sector these days all too often ends in those present expressing concern about the financial institutions’ bond award systems – and there is a growing feeling that a slight change in the bond awarding criteria would benefit many people and South Africa in general.
This was said recently by Bill Rawson, Chairman of the Rawson Property Group.
“We all, I think, understand very well where the banks are coming from and how they have ended up in their current position: many incurred huge losses in the days when housing (and other) credit was given far too easily. It is wholly understandable, therefore, that they are determined to see that that chain of events is not repeated and that they now work to loan criteria which by international standards are very strict indeed but which are certainly proving effective. The fact that ABSA’s Home Loans division’s recent annual profit was R3 billion indicates that they (and no doubt other banks) are on the right track and perhaps that a little extra leniency is now possible in their policies.”
Rawson said that what he and others are hearing from their own bond origination divisions and from many estate agents is that there are now good arguments for a slight loosening up in credit criteria – just enough perhaps to raise the number of bond grants annually by 5%.
“In the case of Rawson Finance, our in-house bond origination division, this would improve their ‘hit rate’ from 66% to 71%. If the same improvement was effected nationally, another 7,500 applicants would be eligible for home loans and this in turn, it has been calculated, would raise our GDP growth rate by 0,2%.”
The problem facing many young couples and families today, said Rawson, is that the real increases in the cost of living have been far greater than most salary and wage increases, making it difficult – sometimes, in fact, impossible – for them to save and to enjoy the lifestyles to which they have become accustomed.
Many, added Rawson, still have far too high individual and household debt and such people are clearly never going to be a good credit risk for the large, long term loans involved in financing a home.
But, said Rawson, the feedback from those in the front line of the home selling and bond origination indicate that there are many bond applicants who have been rejected by the financial institutions who, in fact, would have been excellent customers.
“Time and again we are finding that they were disqualified for minor credit infringements, some of which they might not even have been aware of as sometimes they occurred many years ago. Others are turned down despite high current earnings because they have not been regularly employed or have not been in their jobs long enough, while those who work for themselves (often earning very large salaries) are turned down unless, again, they have been in the same business for many years.”
What is needed, said Rawson, is a little less reliability on hard and fast criteria rules and a little more ability to assess character and performance by means of one-on-one interaction.
“The 5% increase in loans which estate agents are asking for could, I believe, probably be achieved without increasing the banks’ risk. Not being a banker myself I do, of course, have absolutely no right to say this, but there are occasions in life when one’s experience of the market and one’s instincts can indicate the right path to be followed and the consensus of opinion in the home marketing sector is that there is room for a slightly larger number of home loans to be awarded.”
For further information contact the Rawson Property Group on 021 658 7100.
