Mortgage lenders need to be more innovative with their home loans in order to breathe life back into the lacklustre property market.

As economic pressures bite and mortgage affordability worsens, the number of new home loans being registered is dropping every month whilst more people are losing their homes and would-be first-time-buyers are unable to get on the property ladder.

Paul Beadle, managing director of www.justmoney.co.za, says that banks and mortgage lenders should look at new ways of addressing affordability before the South African property market grinds to a complete halt and drastic intervention is required as in the UK. There the Government this week announced a raft of measures to boost the sector including a much derided 12 month 'holiday' on Stamp Duty, the tax buyers pay on their new homes.

"South African lenders have become extremely conservative in recent months," says Beadle. "This is partly in response to this country’s own economic and debt issues, but probably also to reduce the risk of the type of mortgage crisis that hit the US resulting in the current global credit crunch.

"Mortgage providers must of course balance credit risk against their desire to lend people money to buy homes, but lenders need to be more innovative in the products they offer, the way they promote their home loans and how they work with other stakeholders to give the property market a boost."

Innovations could include:

  • New products to increase affordability, such as:

    • Discounted, cash-back or low-start deals for first time buyers.

    • More offset or current account mortgages where the interest on mortgage payments is offset against the interest earned on savings.

    • Guarantor mortgages, where parents stand as part security for their offspring’s mortgage.

    • Professional or graduate mortgages which offer a lower rate in the early years for borrowers whose salary is likely to grow.

    • Joint mortgages, enabling family and friends to pool their buying power to increase affordability.

  • More detailed and clearer mortgage information so that consumers can better understand their choices, particularly when it comes to issues such as choosing a fixed rate or variable home loan, enabling borrowers to compare different mortgage products and deals.

  • Working with property stakeholders to make homes more affordable such as shared equity schemes, where property developers, lenders and borrowers all buy a share in a new property to lower the cost to the buyer.

Beadle says that South African lenders should learn from the successes — and the mistakes — of property markets in the US and Europe. "This country has done well not to get caught up in the sub-prime crisis because lenders have not given out mortgages recklessly to people on the very edge of affordability. "However, we can still look at other markets and overseas lenders and see what innovations or developments can be implemented in this country to help more people buy their own homes."

He says that borrowers should also find out more about their mortgage options. "Currently independent mortgage brokers are one of the few sources of independent information available to borrowers, because, unlike going directly to your bank or using a bond originator, a broker will search a much wider range of mortgage providers to give borrowers best advice and more choice."