Tue Oct 25 23:03:14 SAST 2016
Mkhwebane leaves Zuma‚ Van Rooyen interdicts

The new public protector says she will leave the dispute over the state capture report prepared by h.

Be wary of sub-prime mortgages

By unknown | Mar 22, 2007 | COMMENTS [ 0 ]

Zweli Mokgata

Zweli Mokgata

High household debt and unaffordable property prices could see a rise in the South African sub-prime mortgage market, but analysts have warned that South Africa needs to be careful that it does not fall into the same trap as the US housing market, where about 2,2million people are set to lose their homes because they cannot make the repayments.

"Housing is still expensive for most South Africans," said Realty Executives broker Dan Makgopela.

"But there are some mortgage products directed at people earning about R10000," an earning bracket that previously did not qualify for home loans.

In 2005 sub-prime mortgages, offering a short-termed fixed interest rate that then converts into a variable rate above the normal rate, accounted for about 20percent of all US mortgage deals. Sub-prime mortgages are usually granted to those with bad credit history, thus demanding a higher interest rate to compensate for the added risk premium.

Makgopela said that getting a sub-prime mortgage would result in paying higher interest rates, but that there were some benefits, especially to low- income earners.

"One of the banks is already saying that it will provide a 40percent home loan [higher than the standard 30percent maximum on offer] for low-income earners, but the buyer will still need to have a good credit history," he said.

"If you, as a buyer, are earning at least R10000 before deductions, you can now afford a home worth R380000. You just need to be able to afford it and have minimal costs.

"Things like car payments and children limit the chances of getting approved for the sub-prime product, but if you can manage the higher repayments you could end up paying your bond off in a shorter period."


Login OR Join up TO COMMENT