Less Home Loans Being Approved - 09-04-08

September 4 - While some property analysts are showing cautious optimism about the start of the recovery of the market, the four major banks in the country are still playing it safe by being overly cautious about the loans that they approve to potential home owners.

Statistics SA recently revealed that more home loans than ever are being rejected, with an average of nearly 40% of applicants being turned down by the four banks since the beginning of the year.

'Thanks' to a deepening credit crunch, tough new lending laws and rising inflation and interest rates, literally thousands of potential home owners are being turned away empty handed when they apply for home loans at their banks.

According to statistics, over 100,000 people apply for home loans in South Africa every month and a 40% denial rate from this figure is naturally disastrous for the entire property market as a whole. This is reflected in the value of plans approved by local municipalities for residential building which stood at R2.44 billion this year - a shocking drop from the R13,05 billion approved in the previous year.

The general manager of client value management at Nedbank home loans in KwaZulu-Natal said that ten interest rate increases in two years did nothing to help the situation. The rising cost of living, combined with these interest rate hikes directly affected the average consumer's ability to pay mortgage costs and banks were simply not taking unnecessary risks in these circumstances.

Gavin Opperman, speaking for Absa, said that of its R216 home loan book, the bank had been forced to write off R975 million as bad debt. Repossessions are on the rise as even those who own their homes struggle to meet payments.

The good news is that relief is expected towards the end of next year as interest rates are more than likely going to be cut by the central bank.