Following in its competitors footsteps Nedbank has decided to relax its deposit requirements for home loans and in certain circumstances grant 100% home loans. Nedbank’s decision comes as no surprise as Absa announced last month that they will consider approving 110% mortgage bonds to clients who earn less than R11,000 per month. Absa was the first Bank to provide relief to people in the low-income bracket.
Following a tough 18 months for people selling their properties and estate agents this positive news is a welcome sign of improving economic conditions. The past year and a half witnessed thousands of property industry jobs being shed due to the dramatic drop in sales volume in the property market.
Nedbank lowered its deposit requirements to between 0% and 10% of the value of the property depending on the client’s risk profile. Falling house prices was the main reason that Nedbank had increased their minimum deposit to between 10% and 20% during the past year. Although the bank believes that a 5% to 10% deposit should apply they will consider 100% mortgage loans for low-risk clients. Eager to attract new business the relaxation of deposit requirements will apply to new clients as well.
Nedbank will make no differentiation between clients who apply to the bank directly and those using a mortgage originator when applying for a home loan. The important role that mortgage originators have in sourcing new business for the banks makes this a sensible decision. The selection criteria for home loans is based on the client’s risk profile and the ability to repay the home loan.
The reduced interest rates and the relief this has brought to consumers influenced the decisions of the major banks and this is reflected in an increase applications for home loans and a stabilisation of prices in the residential property market. The reviewing of the various bank’s offerings to their clients is a result of the evident turn in the economic cycle.
This follows after a recent report by Lighthouse,a property valuations company was released last week. According to the figures given in this report various had already started showing an improvement as early as May this year and the company expects property prices to start moving upwards for the first time in 16 months. These predictions are based on data from the Deeds Office. The company is still waiting for data for the months of June and August before releasing final figures.
The Eastern Cape seems to be the area that will be the first to recover from the property market recession with the lower income housing showing higher returns than more luxury class housing which is currently the worst performer. The volatility of the affordable property market segment over the past few months makes current predictions very difficult.
According to a recent market report by Absa’s senior property analyst Jacques du Toit, the average nominal price of houses in the R3.1m -R11.5m continued to rise in the second quarter of this year. Taking inflation into account although house prices increase by 4% in value year on year the total decline is expected to be 3% for 2009 whereas the prediction is that house prices will increase by the same percentage next year.