Editor’s Note: Members of our team attended Standard Bank’s Property Breakfast, hosted by comedian Conrad Koch. They received a tasty meal, some sweet treats and a look behind the curtain to see what Standard Bank’s policies are, the events that influence them and the current mortgage market leader’s preparations for the future.
After a round of one-liners and Koch’s ventriloquist act featuring Chester Missing (the dummy turned star featured on Emmy nominated local satire show LNN) things became a bit more serious: Standard Bank Home Loans representative Steven Parker took the stage gave a brief yet informative talk. Here is our break-down of the important bits of what he had to say:
2013 was a “good year” and 2014 will be better
Mr Parker believes that, despite what many people might feel, 2013 was a “good year”, at least in the mortgage and property industry. There was increased bank confidence resulting in more liquidity and this facilitated an increase in the number of properties being sold and purchased. This growth is set to continue in the short to medium term despite expected slow growth in the South African economy in general and the widely anticipated increase to the prime lending rate by 1% by the end of 2014.
This positive outlook is attributed to the fact that local banks in general had finally begun to shrug off the worst effects of the losses they sustained during the financial crisis and the instability that followed (like the R80 billion of home loans written off as bad debt).
Financial Crisis: Important lessons learned
Despite the positive outlook and the return of significant growth in mortgage lending Parker was adamant that the banking industry had learned important lessons across the last decade and that “We will never see the level of growth [in mortgage lending] that we saw between 2002 and 2007”.
These important lessons pertain to risk profiles and pricing of loans. It was made clear to the audience of mortgage originators and estate agents that they will never again see rate concessions of more than 2% below the prime lending rate. And, more importantly, in the future only those including cash deposits (of 10% or more of the purchase price) in their offer will get favourable interest rates from the bank when applying for a home loan.
Additionally Standard Bank will remain strict on the self-employed home loan applicant going forward and there are no plans to make it easier for these people to acquire home loan debt. When questioned about this policy Parker stated that 50% of the debt that Standard Bank wrote off came from entrepreneurs. These people had suffered heavily during the crisis years of 2008-2010 and now the bank was “gun shy” when it came to lending to the self-employed.
Pivot toward the lower end of the market
Standard Bank will, in the years to come, be pursuing a larger share of the affordable housing market as well as pursuing first time buyers. The affordable housing market consists of properties valued at below R600 000 and/or clients with monthly a combined gross income of R25 000 or below.
Why this pivot? Statistically these households are less likely to default when compared to higher income households and it is the portion of the property market that is projected to grow massively in the medium to long term. Demand for properties in this sector is gigantic and currently the supply is nowhere near meeting it: It is estimated that 1 000 000 new houses are needed in this category while only 20 000 a year are being constructed.
This is part of a wider strategy among banks to build long term relationships with growing numbers of South Africans starting their journey into the middle class. Currently FNB leads this section of the market with a bond book of nearly R13 billion and Standard bank wants a piece of this action.
Unknown impact of Credit Amnesty
We got the feeling that the credit amnesty was a cloud on the horizon and the bank didn’t quite know how to react to it yet. But it was clear that higher rates were going to be their ‘Plan A’: “So far the Credit Amnesty has had no impact but in the longer term it doesn’t look great: as the long term risks come through we will probably see increases in pricing” said Parker. This negative sentiment is based on the fact that that 70% of people cleared by the last credit amnesty had defaulted on their debts after regaining access to credit.
- 2014 will be a good year for the property market
- Growth in property market will remain strong in the short to medium term
- If you can you should save up for a deposit as this will save you money in the long run
- The days of heavily discounted loans are over
- Self-employed people will still have to jump through hoops to get loans
- Affordable housing will drive growth within the property market and mortgage lending
- Impact of Credit Amnesty isn’t clear yet but bank not hopeful and will likely increase fees and rates
All in all it was a very worthwhile event. Oh and if you’re ever fortunate enough to be eating breakfast at Westin hotel don’t be put off by the appearance of the chocolate mini-muffins: they’re quite tasty!