Banks are reportedly denying 61.2% of bond applications. This is another setback for the already struggling South African property market.
Interest rate increases over the last few years made buying a home more costly than ever before which resulted in a slow down in the property market across the entire country. Homeowners suffering under elevated interest rates were then unable to find buyers for their properties partly because of the high interest and partly because of the introduction of the National Credit Act (NCA).
The NCA was implemented to offer more protection to lenders and borrowers by imposing stricter lending criteria so that borrowers did not incur more debt than they could afford to pay back and so that the banks had more assurance of payment.
Perhaps an unforeseen consequence of this decision was the increasing pressure it would put on the property market.
Many people are calling for a relaxation of the lending criteria in view of current market conditions, they are hoping it will stimulate some much needed growth in a sector that has in the past enjoyed a reputation for being a wise investment.
However it does not seem as though the lending institutions are going to budge on their tough criteria because of the threat of major joblosses due to the global financial turmoil. Maybe once South Africa has a clearer picture of whether or not we are definitely in a recession they will re-think their policies.
What do you think? Will the banks relax their criteria soon?
