Banks favour government property subsidies

Banks favour government property subsidies

The affordability gap in the housing market is expected to be narrowed by changes to government housing subsidies and the commencement of the R1 billion guarantee fund to promote access to home loans for lower-middle-income households.

President Jacob Zuma said last week in his State of the Nation address that the guarantee fund, managed by the National Housing Finance Corporation (NHFC), would start its operations in April.

From April, people earning between R3 500 and R15 000 would be able to obtain a subsidy of up to R83 000 from provinces to enable them to obtain housing finance from an accredited bank, he said.

The gap housing market comprises households that earn between R3 500 and R7 000 a month, which is too little for them to obtain a home loan, yet too much to qualify for state assistance.

Gap housing is the term used to describe the shortfall or gap in the market between residential units supplied free by the state that cost R100 000 and less and houses delivered by the private sector that cost in excess of R250 000. The R1bn guarantee fund was announced by the government in 2010.

Pierre Venter, the general manager for banking and financial services at the Banking Association SA, said last week that the revamped housing subsidy scheme and risk underpinning of the guarantee fund would work together to close the affordability gap in the housing market and was welcomed by the industry.

Venter said revamping the finance-linked subsidy programme to include households earning up to R15 000 should be sufficient for households to own a home.

He said the banking sector welcomed this initiative because about 20 percent of South Africa's working class fell into this market and were unable to afford a home.

Closing this affordability gap would help the banking sector to fulfil the role it would like to fulfil, he said. He said the start date of April 1 for the subsidy programme was not unrealistic as it was only being revamped.

However, the same commencement date for the guarantee fund was probably too optimistic.

Venter said the association's banking members had been engaging with the Human Settlements Department through the NHFC but no agreements had been signed yet between the department and individual member banks. He said a programme like the guarantee fund was voluntary and individual member banks had to sign up to the fund in their own capacity.

Venter said the demands that the fund would place on banks in terms of their processes and computer systems would remain unknown until the product had been finalised with member banks but would determine how quickly banks could implement the programme.

"System enhancements could delay implementation quite substantially," he said.

He said the guarantee fund would take risk out of the overall cost equation for banks, which determined the interest rate clients were charged on mortgage bond.

The cost reduction would vary from bank to bank and also depend on the loan size but would probably mean banks would be able to cut the interest rate they charged these clients by between 2 and 2.5 percentage points.

This would help to close the affordability gap but would not close it completely.

Venter said the success of this programme would also depend on the amount of money that provinces and municipalities put into the subsidy programme.

"If the provinces look to put money into pure subsidy housing and little into gap housing, the impact will be low (small)," he said.

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Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!