Gauteng Business News

Send  Share  RSS  Twitter  29 Apr 2013

PROPERTY: Basel III Changes Positive for Homebuyers


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For many months, interest rate concessions on home loans have been virtually unheard of, and many borrowers have in fact only been able to secure loans at one or two percentage points above prime.

But now things are set to ease up somewhat, says Rudi Botha, CEO of leading SA mortgage originator BetterBond, thanks to a decision by the Basel Committee on Banking Supervision (BCBS) to change some of the new capital reserve requirements for banks that were due to be implemented in 2015.

These liquidity rules, proposed in 2010 as part of the Basel III plan to help banks survive financial crises, were widely felt to be too stringent for banks in emerging or developing economies like SA, but financial institutions in those countries had nevertheless begun preparing for their implementation by raising their lending rates, he explains.

“However earlier this year January, the BCBS widened the definition of the type of assets that banks will need to hold in reserve as a buffer against financial stress, and also extended the deadline for the full implementation of the Basel III rules from 2015 to 2019.”

This is very exciting news for potential homebuyers, Botha says, because not having to keep to the original strict capital reserve requirements should mean that the banks have more money to lend and can afford to be a little more lenient when it comes to home loan interest rates.

“And even a small rate concession can make a huge difference to the total price paid for a home over the 20-year life of a loan. At 8,5%, for example, the total interest paid on R1m loan over 20 years would be R1,08m, while at 9%, the total interest paid on the same loan would be R1,16m.”

As things stand now, he says, the banks already appear to be moving back into home loan lending and away from higher-interest rate personal loans, and BetterBond has seen the average home loan approval rate increase from 61% to 67% in the past 12 months.

“In addition, the banks have been reporting some better results from their home loan divisions, and as the ‘returns’ on this type of lending continue to improve, we believe the capital allocations by their treasury departments for home loans will become more favourable and enable more rate concessions, especially with the Basel III rules having been changed.”

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