The state-owned National Housing Finance Corporation (NHFC) and Old Mutual have allocated more than R1.3bn to provide affordable home loans for customers who do not qualify for government housing but are often turned down for mortgages.
Under the new offering — focused on what is traditionally referred to as the gap market — borrowers will repay a set instalment irrespective of fluctuations in variable interest rates.
This a first for the market, as it allows borrowers to increase home loan instalments based on salary adjustments.
The funding will be provided through Housing Investment Partners, in which the NHFC owns 33%, with the remainder held by Old Mutual Capital Holdings.
Housing Investment Partners said volatile interest rates — which often led to customers losing their homes as they could not keep up with payments — were among the main drivers for providing the new funding model.
The target market is low-to-middle income earners, who have a gross salary of between R3,500 and R30,000 a month, and can access finance for houses in the R200,000-R650,000 price range. The estimated backlog in the gap market is 850,000 housing units.
Housing Investment Partners CEO Andrew Chimphondah said: “The instalment is fixed. If a customer has a salary increase, the instalment will increase in tandem with the salary.”
The Housing Investment Partners offering would, it was hoped, cut down on the need for unsecured credit to build houses.
Consumers struggle to keep up repayments on unsecured credit because of high interest rates.
Housing Investment Partners would offer an interest rate of prime (9.5%) plus 4.5%, including credit life cover for a property in case of a customer’s death. If the customer finds alternative insurance and credit cover is excluded, the rate falls to prime plus 3.5%.
Old Mutual’s mass foundation cluster finance director, Michael Goemans, said Housing Investment Partners would not compromise on its credit criteria and would be a responsible lender.
So far, its approval rate is just 20% of applications.
NHFC head of strategic investment Sizwe Khumalo said its role was to ensure the lower end could get cheaper, affordable finance.
Housing Investment Partners has paid out R480m of the R1.3bn. About R900m has been committed for housing still under development. The expectation is that, by mid-2016, the R1.3bn would have been fully lent.
Lending has been advanced for 1,191 registered bonds.
Written by Phakamisa Ndzamela for Business Day Live