A warning issued three months ago by the Chairman of the Rawson Property Group, Bill Rawson, that the rapid rise in the banks’ unsecured loans (30% up this year on the same period last year) should be carefully watched and should not be allowed to slow down or influence bank home mortgage loans has now been raised for discussion by the South African Reserve Bank.
South Africa’s financial press recently reported that the Reserve Bank has been in talks with all South African banks on this subject. Rawson said this week that he is pleased that concern is being shown on this matter.
“It is,” he said, “definitely one of the reasons, in my opinion, why the latest Economic Confidence Index shows a decline to 48, 6 (for the third quarter of this year) from 51, 2 for the second quarter. In effect, therefore, we have gone from a slightly positive to a slightly negative outlook.
“The banks,” added Rawson, “have pointed out that short term unscheduled loans are more profitable, although more risky, than long term secured loans, such as home mortgages. They have said that apparently ‘only’ R335 billion, i.e. 8% of the total South African banks’ debt, is in this category. Furthermore, another report has indicated the banks’ appetite for this type of lending has definitely slowed down recently. Nevertheless, many people feel that the figure is dangerously high, especially when one considers how difficult it is to get a mortgage bond now - only 6% of South Africans currently have home mortgages.”
This 6%, added Rawson, has shocked the home-owning industry, who generally believed the figure to be closer to 15%. By way of contrast, he said, approximately 50% of all USA citizens are currently have home loans.
Of great concern, said Rawson, is also the fact that, as “Business Day” recently reported, a high percentage of those on unsecured loans appear to be public servants who get such loans more easily, as they are thought to be less in danger of losing their jobs than people in private enterprises.
Also of concern, said Rawson, is that the recent wage hikes have been well ahead of the inflation rate, encouraging more spending.
Another concern, said Rawson, is that many mortgage bond holders – including some first time home buyers – have been encouraged to take out high interest rate unsecured loans to cover their deposits and transfer fees.
“I need hardly point out that this is contrary to the banks’ traditional policy, which was one of insisting that the borrower should show some real commitment by raising at least a 10% deposit or own equity,” said Rawson.
The advocacy of short-term unsecured lending by the banks, said Rawson, is understandably driven by the need to show regular profit growth. Nevertheless, he says, somehow the banks must be ‘cajoled’ into feeling the same enthusiasm for home finance because home ownership leads to political stability and motivates people to become steady wage earners.
“At one stage in Europe many countries were offering large tax rebates to those who committed themselves to bond payments,” said Rawson. “In today’s economic climate that is simply no longer possible, but there must be some way of providing an extra incentive to work to obtain and pay off a home mortgage.”
