Home Lending Programs In Africa | Mortgage

by GrahamMcKenzie

Economists are blaming overzealous lender for the US sub prime mortgage debacle. According to them, lenders compromised on prudently devised norms for lending, and in the process, loaned monies to people who would not under normal conditions qualify for any mortgage. While this is true to an extent, it is not the whole truth.

The problem actually started towards the end of 1990s, and the first few years of 2000s, when the banks and lenders found their coffers filled with cash. They had no takers for this money, which is the reason they brought down both lending rates as well as the norms for lending. This did not do augur well for long-term business, considering the cost of their capital.

Desperate to earn some monies, lenders innovated new financial products to capture more customers than their competitors. Home loans were considered the safest bet of them all. After all, if the borrower failed to pay, the lenders could always opt for foreclosure and get back their monies. Their assumption was not far fetched, because around that period, real estate values had climbed up a few notches. In what followed this surplus liquidity, many people with adverse credit, including some first time homebuyers came into these rapids. A frenzied borrowing trend led real estate to dizzying heights, but eventually, when the first set of these poor credit borrowers defaulted, the real estate bubble just burst, and lenders found they'd been lending more than the actual worth of the property. They also realized that their products had contributed to this frenzy, and those foreclosure clauses were not adequate protection for them.

Some the biggest banks in sub-Saharan Africa are currently experiencing the same excessive liquidity the drove the subprime markets in the United States. While the sub-Saharan market it minuscule when compared to the United States and Europe some factors which were prevalent in those markets are emerging in many African nations today. This supports the viewpoint that Africa may be about to experience a boom in their mortgage markets.

But the African residential mortgage markets, unlike the US and European markets are far from being fully developed. In these most of these countries only a small minority of the residents have a bank account or use any type of banking facility, let alone have a mortgage. In these markets the residential mortgage loan exclusive and generally only available to the upper class. But now there is a growing middle class demographic with the desire for home ownership.

Fortunately it's unlikely that African banks will need to market any type adverse credit or subprime mortgage products. Since most Africans simply do not have a credit history and therefore do not have impairments to their credit history. Their loans can be underwritten using standard conforming guidelines. In these countries it's customary for mortgage repayment to be paid directly to lenders from the borrower's employer. This reduces risk to the lenders and results in the borrower getting a lower interest rate.

This means the lenders in sub Saharan region would not be allowing a mortgage market to run away. Instead, they will be investing elsewhere and earning profits on their investment. Mortgage market in the west, particularly, the home loan segment will take several years to recoup. In the meanwhile, it will be African banks that may rule the roost.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Graham McKenzie is the content coordinator for a leading South African leading Home loans and Bond Origination portal which provides access to Nedbank Home loans.