Low Income Housing Now Affordable

Nedbank has launched an affordable housing finance scheme available to South Africans earning less than R9 760, which makes first time home ownership just that much more accessible. The bank has teamed up with the French Development Agency (AFD) to provide loans for low income housing.

Jeff Lawrence, Head of Affordable Housing at Nedbank Retail, says that despite efforts by the government, there are still many challenges that plague the low income housing sector, such as the ever-growing issues of affordability, where costs associated with land, infrastructure, building and high interest rates are by far exceeding market earnings.

The proposed housing scheme applies innovative and first-to-market initiatives that include a once-off non-refundable grant of R8 500 for the various applicants. The grant will be employed to cover legal and up front home loan costs, with the remainder helping to reduce the total loan amount.

The rate structure benefits clients in that the interest rate will never go up, but may come down should the interest rates move below the original agreement rate. This will ensure that home owners are protected from the dangers and uncertainties involved with a fluctuating interest rate environment.

The period for the home loan agreement is typically 20 years, which exceeds the 12 year reducing cap period. After 12 years, the agreement will revert to a variable rate, but the client is able to negotiate any other interest rate option that may be available at the time.

Lawrence says that the latest initiative with AFD is designed to address the affordability issues in the current market by making it possible for more people to qualify for housing finance. He adds that cash injections like that from AFD are necessary in that they work to remove barriers to home ownership.

“Nedbank is proud of its partnership with AFD as it will enable the bank to tap into new markets and play a role in making a contribution to help South Africans access home loans and financial services,” says Lawrence. The program will benefit from the bank’s knowledge of the local housing market, as well as its infrastructure.

He goes on to say, “What makes this initiative even more attractive is that it is not restricted or linked to any particular housing development, allowing people to buy homes of their choice, in the specified areas”. Initially the program will be restricted to pilot sites laid out for the purposes of first time home buyers, with the possibility that it will be extended to other areas within Gauteng and other provinces in the country.

Lawrence notes that it was necessary to understand the concerns and needs of the target market. “The offer has been designed to address these concerns and also prove to this market that home ownership is within their grasp”. The loan will encompass a borrowers education program, which is aimed at assisting and educating clients about the nuances involved with home ownership and maintenance.

Some of these include understanding and clarifying the terms and conditions, highlighting the client’s rights and responsibilities before signing the contract, as well as addressing any questions or concerns the client might have. “As a responsible lender, we want to ensure that clients make informed decisions when entering into the home loan agreement,” Lawrence says.

AFD Regional Representative, Christophe Richard says that, “AFD fosters access to home ownership for populations which would normally be excluded from it and promotes support programs in partnership with private banks. AFD financing makes it possible to reduce the amount in capital borrowed by households that meet specific criteria to implement training for borrowers. The aim is to help banks go beyond the commitments of the Financial Sector Charter”.

The initiative for affordable housing comes after a Memorandum of Understanding was signed between the country’s four retail banks and the Minister of Housing in 2005 and is also in line with a commitment made by the various banks to the Financial Charter signed in October 2003. The banking sector committed to providing R42 billion in low income housing finance by 31 December 2008. In light of all this, it seems that Nedbank is indeed holding up its side of the bargain.

The information in this article is courtesy of Durr Online (“New home loan finance for under R10 000 earners”, Moneyweb, 29 September 2008).

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