Absa follows Standard's lead

2009/09/08 09:05:00 AM Elma Kloppers




Johannesburg - Competition is alive in the banking sector and consumers are reaping the benefits, reckon industry players.

This is particularly so in the home-loan market, where Absa has followed Standard Bank by also relaxing its lending criteria for home loans.

"This step is probably because banks have recently been under tremendous pressure to resuscitate the housing market," comments Stuart Grobler, a senior general manager at the Banking Association of South Africa (Basa).

He says Absa's response is one of the benefits of competition. Banks have for some time been sharply criticised because their deposit requirements constitute a principal reason for the pressure on the housing market in the past year, despite the series of interest-rate cuts since December 2008.

But Absa is being less generous than Standard Bank, which last week made 100% mortgages available for new home loans of up to R1.5m.

Absa still requires a 5% deposit for loans of up to R1.5m for Absa clients using the bank's internal channels, and a 10% deposit for those using external channels, such as mortgage originators. Deposits of 15% were previously required.

But Absa clients wishing to buy repossessed houses from the bank will qualify for 100% loans.

Erwin Rode, a property valuer and economist at Rode & Associates, says this makes sense because these houses can be bought at a healthy discount, possibly as much as one-third below market value.

Buyers of cheap houses will be the biggest beneficiaries of Absa's new lending criteria. The bank is making 110% loans available for prospective buyers with a monthly household income of up to R11 000.

Luthando Vutula, managing executive of Absa Home Loans, says this applies to mortgages of up to R250 000.

But, despite the lower interest rates, he points out that the economy remains under pressure and Absa still encourages deposits. "It's important to have equity in a home loan, especially when house prices are falling."

Commentators agree that this is good news for the house market. Betterbond marketing director Dr Deon Lessing says it is becoming easier to buy a house since a smaller deposit is now required.

He expects this, together with the lower interest rates, to stimulate the housing market.

Adrian Goslett, deputy regional director of Re/Max, says this is creating a fresh platform for competition between lending institutions, and will benefit both consumer and the housing market.

Rode says prospective buyers will still have to meet the criteria of the National Credit Act. "That way, banks will be able to manage their risk."