Good News – Interest rate likely to remain untouched for 2012

The past few years have been tough for home buyers, estate agents and mortgage originators.

The causes for this are interlinked: the international economic climate, the local interest rate and banks’ low risk appetites.  While the global economic situation is far from stable there is some good news on the home front in that the interest rate is likely to remain unchanged for 2012 and, importantly, banks are increasingly approving home loan applications.

It is in this light that the recent announcement from Absa Bank that it wants it mortgage share back is welcomed by estate agents and mortgage originators alike. Home buyers know how difficult it’s been to get their home loan approved – 50 out of every 100 applications are turned down at first reading. 

The 50% who’s applications are approved also need to face the fact that “the situation now is quite different from that a few years ago, when borrowers in good standing could with relative ease secure a rate that was one or even two percentage points below prime rate. These days most loans that are approved are at prime (currently 9%) and then in most instances only if the borrower can pay a 10% deposit”, says Rudi Botha, CEO of Betterbond. 

The home loan market is big business in South Africa totalling R900bn of which Sifiso Shongwe, managing executive of Absa Home Loans, says Absa currently has an R 221bn share. Shongwe admits that the bank did lose market share due to their low risk threshold, but that the bank plans to conduct 30% more business in 2012 than it did last year. 

“It is very good news that Absa wants to capture as much as 30% more business this year.  The home loans market was dominated by Standard Bank last year and the re-entry with Absa at this level is bound to create competition”, believes Jan le Roux, CEO of Leapfrog Property Group.

Le Roux goes on to say that while estate agents have many willing and able buyers, obtaining home loan finance remains the biggest challenge.  More competition between the bigger banks is bound to enhance this position and bodes well for the property market.

According to Absa they’ll increase their market share by improving their services, notably due to the implementation of their Easycheck system with which home loan applicants can find out whether they could qualify for a loan in 60 seconds. 

Shongwe revealed that the plan also includes focusing on Absa’s existing clients as the bank already understands their risk profiles and can price for them. Le Roux believes that increasing market share will ultimately come down to winning over applicants from other banks which could mean less stringent requirements – a development that will be welcomed by both buyers and mortgage originators.  

Underscoring Absa’s desire to become bigger competition is the fact that housing affordability continues to improve and that now is indeed a good time to buy a home as indicated by Jacques du Toit, Senior Property Analyst at Absa Home Loans.

Jan le Roux believes that this evaluation is on the money; “I fully agree with Mr Jacques du Toit of Absa home loans, it is indeed a good time to buy a home now.

One must not forget that for most South Africans buying and selling homes is not a pastime but the most important investment they will ever make.  They cannot necessarily bide their time according to market fluctuations and must make decisions based on other considerations such as the proximity of schools, transfers, types of accommodation and such like.  Now is a good time to make those decisions and make a medium to long term commitment in owning property.”