High interest rates and low employment levels had a negative impact on potential mortgage borrowers in 2017 resulting in a slight increase in mortgage advances, the Zimbabwe Association for Housing Finance has said.
Responding to enquiries from Business Weekly, ZAHF said the mortgage lending environment in the year was generally characterised by inconsistent liquidity patterns for some lending institutions and affordability constraints on the part of some potential borrowers caused mainly by high interest rates and low employment levels.
Interest rates for the period averaged 10 percent with ZAHF saying “going forward we see interest rates going down to plus or minus 7,25 percent by third quarter 2018.
“This will be a result of opening up of lines of credit at competitive rates without the country risk premium,” said ZAHF.
While demand for housing, in a country with a 1,25 million housing backlog, is huge, affordability has been a major constrain as potential borrowers are struggling to raise the initial deposits which are beyond the reach of many.
A good example is the Old Mutual Budiriro housing project which is still to be sold off years after it was completed with one of the major reasons being the issue of affordability.
The Budiriro houses, which cost between $21 000 and $27 000, initially demanded a 30 percent deposit but has since been reviewed downwards to 10 percent.
However, the downward reviews have still failed to attract takers with only 800 units having been sold by July last year from the total of 2 879 houses constructed.
Mortgage advances in 2017 were mainly directed towards funding construction of new units, the bulk of which were produced under projects undertaken by the lending institutions.
A total $112,1 million was advanced during the year up from $111,4 million advanced to 2,131 borrowers for the comparative prior year.
Of the total amount $82,3 million or 73,42 percent was used to finance the construction of 2,486 new dwellings.
The year 2017 also saw most local banks developing equity release or home improvement products.
“While the traditional mortgage lending for acquisition of new properties has been rather subdued, lending continued through the equity release facility.
“Equity release enables owners of unencumbered properties to unlock the value of their properties by mortgaging such properties as security for loans for personal purposes such as financing business projects or paying education fees,” said ZAHF.
Normally, loans of up to 50 percent of the value of the property are considered and ability to repay must be proved.
“Of the total mortgage loans $29 795 299 or 26,58 percent was lent on the security of 500 existing units for purposes of acquiring, enhancing and financing personal expenditure under the equity release facility,” said ZAHF.
The period also saw new players joining the mortgage lending sector with POSB commencing offering loans during the year and officially launched their mortgage lending service in August 2017.
Total mortgage capital of the Association’s members increased from $415,3 million as at 31 December 2016 to $489,9 million as at 31 December 2017.
Mortgage lending is described by many as safe as it is backed by security of the houses or buildings.
“Despite the adverse economic environment total loan instalments in arrears constituted 2,91 percent of consolidated mortgage capital, an improvement from 3,25 percent as at 31 December 2016.
“The application of cautious loan underwriting and prompt recovery procedures has contributed to the low default rate in the sector,” the association said.
Borrowers have also been losing houses with banks repossessing properties from non-performing accounts.
NMB is one such bank where investment properties have ballooned to $18,9 million from $14,2 million.
“The increase there (in investment properties) is arising out of the repossessions of non performing accounts. But as I said before in terms of those properties we then acquired we disposed them through our mortgages section,” said NMB financial director Benson Ndachena.
ZAHF anticipates that the on ongoing changes in the business environment will result in improved availability of affordable funds for housing going forward, particularly in the low income sector.
“Resumption of targeted arrangements with international agencies such as the World Bank and USAID that provide funding for servicing stands and housing construction loans at concessionary interest rates will stimulate activity in mass housing development in the country’s urban areas. “
With the country having declared itself open for business ZAHF believes improved employment levels will help improve affordability and re-cultivation of a saving culture that augments the pool of lending funds.