Many South Africans are experiencing financial strain and while the processing and vetting of home loans are underway once more - banks are carefully assessing the ability of its customers to manage their debts going forward.
South Africa is currently under lockdown Alert Level Four – after just over a month of Hard Lockdown, which ended on 1 May - as every sector of our economy has been shaken to the core by the Covid-19 Pandemic.
With the expectation that most of the country will be moving to Alert Level 3 before the end of May, the forecast for the rest of the year is a deep recession of -4.5% Gross Domestic Product contraction, significantly more severe than the -1.5% GDP contraction of 2009.
While another 25 basis points cut is forecast when the Reserve Bank meets this coming week on Thursday, 21 May, concern is being raised the industry cannot operate fully. Key stakeholders continue to lobby for reclassification of the restrictions that only allows residential real estate to operate full under Alert Level 2.
READ: Housing sales drop drastically due to Lockdown, urgent call to reclassify
While the reduction in the interest rate, already at an historic low of 7.75% is meant to help South Africans in distress, with an expected climb in retrenchments and unemployment - we wanted to know what the rate of home loan approvals have been under these unprecedented conditions.
'Customers experiencing financial strain'
Aassessing a customer’s affordability underpins Absa’s lending decisions, and with the impact of Covid-19, nothing has changed, according to Geoff Lee, Managing Executive Home Loans, Absa Retail and Business Bank SA.
“We realise that the COVID-19 pandemic has had a significant impact on economic activity and business operations in South Africa and that many of our customers are experiencing financial strain," says Lee.
“Against this background, we recently launched a comprehensive Payment Relief Programme where customers with credit products can choose to defer payments for a period of three-months, thereby getting immediate cash-flow relief. The programme has no turnover limits or income threshold.
“Customers’ income, current debt commitments and monthly household expenses are all considered to accurately determine an applicant’s affordability, and ultimately their ability to take on additional debt. This principle does not change as a result of COVID-19, although we expect that the income of some customers will be affected, which will impact their affordability.
“To this end, and in line with the National Credit Act (NCA), Absa considers a customer’s latest/current income when assessing affordability,” says Lee.
Absa says it continues to “review its risk appetite on an ongoing basis and makes adjustments as market dynamics change”.
With most property industry stakeholders only starting to do business once the lockdown restrictions ease to Level 2, Absa says “it has been difficult to gauge the appetite in the market for new home loans”.
Sharp slowdown
Head of Home Loans at Standard Bank Steven Barker says, “We have experienced a sharp slowdown in applications since the end of March.
“We have started to see a small increase in applications in the past week as we start to see deeds offices opening. The current low volumes and with no real activity within Real Estate makes it difficult to assess what the impact on approval rates are at present.”
Application approvals continue, monitoring risk
Nedbank has continued to accept applications for bond finance throughout the lockdown period, but has also "seen a material reduction in demand".
Head of Nedbank Home Loans Thozama Mochadibane says since the slight easing of restrictions under Lockdown Level 4 – such as attorney instructions, opening of the deeds office, and ability to verify employment - the bank has started processing applications.
“We have also recently seen an increase in new business demand. Although we have seen a significant reduction in intake it has not resulted in a reduction in approval rate of applications.
“While some customers have been negatively impacted in respect of their income, particularly those with variable income, many customers have benefited from the recent 200 basis points reduction in the prime lending rate.
Mochadibane says at this stage it is difficult to determine the extent to which customers will be permanently impacted by Covid-19, but the bank is “closely monitoring our customers to ensure that they will still be in a position to afford their bond repayment once the loan is registered”.
Buyisile Maseko, FNB Growth Head for Home Finance – Gold Segment says FNB also “continuously reviews its policies to keep abreast of the current macroeconomic environment and our applicants’ circumstances”.
“New applications are vetted accordingly with the consideration of a customer’s credit standing and affordability. At FNB we understand that the buying process can be rather complicated and lengthy, but we are here to assist every step of the way.” Maseko advised FNB customers to make use of the FNB app to simplify the process.
SEE: Top 9 common mistakes to avoid when buying your first home
What do I need to be pre-qualified for a bond?
A pre-qualified home loan will give first time home buyers a good indication of what house they can afford. This amount is not a guarantee from a Bank but rather a guideline to be used when house hunting.
There are two ways in which to apply for a pre-qualified home loan. You can go to the Banks directly, or use a mortgage originator. A mortgage originator will help you apply for a bond at multiple lenders, giving you the freedom to compare quotes, whereas your private bank will evaluate your existing relationship with them to determine your loan rate.
When applying you should have all the relevant information at hand:
- Latest payslip
- 3 Months' bank statements
- Proof of identification
- Other relevant documentation (check the relevant Bank regarding additional information which might be required)
Once your application has been approved, the Bank will issue you with a quote stating information pertaining to the pre-qualified loan. Cited on your pre-qualification will be the bond amount, the interest rate and the instalment amount. It is important to note that the final bond approval is subject to various factors such as the Bank’s property valuation and a signed Offer to Purchase.
Calculate what home loan you could afford
What happens after you have applied?
- The bank will assess your application with all the information you have submitted.
- During the assessment process, the bank will assess your affordability, check your record with the credit bureau and value the property to make an informed decision about your application.
- The bank will either decline or approve your application. If the bank is unable to approve the full amount, it will make an offer on the highest amount you can afford.
- You will need to either accept or reject the bank's offer which will be in a quotation format. Once you have accepted the quotation, the process leading up to registration of your bond with the SA Deeds Registrar (Deeds office) is complex, but fortunately it usually runs its course with you having little involvement.
This process is as follows:
- The bank will proceed to instruct the attorney to register the bond in the Deeds Office.
- The seller or appointed representative (e.g. Estate Agent) advises the transferring attorney to transfer the property.
- Title Deeds and cancellation figures are requested from the bank currently holding the bond.
- A rates clearance certificate for the property is requested from the local authorities/municipality.
- A tax clearance certificate is requested from SARS.
- The bond attorney contacts the transferring attorney and advises of the amount available for guarantees and request the draft transfer deed.
- The cancellation attorney is requested to cancel the seller's bond on receipt of a guarantee for the outstanding amount.
- Once the transferring attorney has received the Title Deed and cancellation figures, the buyer and seller sign the transfer documents.
- The buyer pays the transfer costs to the transferring attorney.
- The bond attorney prepares the bond documentation and the buyer signs these documents and pays the costs.
- The bond and transfer attorneys lodge the documents at the Deeds Office simultaneously.
- The Deeds Office receives all documentation and verifies it prior to permitting registration.
- The bond and transfer attorney will advise when the bond is on preparation (prep). This means the bond will register within 1 to 3 days.
- Transfer and registration take place.
- The bank and/or attorney will inform you on registration of your loan.
- The bank pays out the loan on the date of registration.
- The bank will advise you of the details of your monthly repayment.
The attorney will forward the Title Deed and Bond document to the bank to kept as security. This process can take up to 3 months and is dependent on external factors beyond the banks control - i.e. Deeds Office, rates clearance certificate, SARS requirements – as well as delays created by the restrictions of government’s Covid-19 risk strategy.
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