In recent announcements, South Africas banks ensured the public that they are committed to providing finance for those property buyers in the more affordable sector of the property market, however, these assurances come at a heavy price.
The reality, says Tony Clarke, Managing Director of Rawson Properties, experienced by many property buyers in the price category below R300 000 is that most banks still reject their loan applications.
'This could be due to many reasons, including that the applicant has credit judgements against him/her or that the bank cannot find value in the property that justifies the loan amount'
Clarke says that the stricter application procedures imposed by the National Credit Act could also have a dampening effect on this end of the market.
'It is unfortunate that those who are struggling to create their own wealth have been hit the hardest by the new regulations, resulting in the widening of the gap between the rich and the poor in this country.
'Even more disturbing,' says Clarke, 'is the fact that in the event of a bank approving such a loan, the applicant is charged with higher rates. In one specific case, a property buyer was charged interest of 3% above the prime lending rate'
Clarke explains that the procedures according to which banks approve applicants vary.
'That is why certain applicants might be declined by all banks, except one, but then this approval is charged at a high interest rate. Unfortunately, the property buyer is not left with much choice in the matter and is forced to go with this unfair deal they receive from the bank if they want to become property owners.
'The irony of the situation is that these applicants do not have a large amount of disposable income or they have a history of bad repayments. Now they are the ones who are being charged at such a high rate that the buying of property becomes a very expensive exercise'
Clarke explained his statement by referring to a specific case where a loan of R290 000 was applied for. If repaying at prime rate, this buyer would pay R3 500 per month to service the home loan. However, in this case, the bank charged him at 3% above prime, which increased the amount to R4 144 '“ almost R650 more.
'If the buyer was paying off R4 144 on a property at prime rate, it would mean that he would be able to qualify for a loan of R343 330 '“ an additional amount of R53 330 that he could have spent on his investment, instead of paying it to the bank'
Clarke says that it is unfortunate that those who are 'desperate' for a home loan have to pay more than those who are less desperate. 'We predicted that the lower brackets would be hardest hit by the increased interest rates and stricter regulations of the NCA and it seems that cases like this one prove our point'
