Home Lending Programs In Africa
The sub-prime mortgage in the U.S. has been the topic of many conversations as well as articles. Market analysts have decided to blame the downward spiral of the credit market on the recent adverse credit conditions. Lenders are now extending home loans to individuals with less than impeccable credit ratings. In addition the borrowers have a less than impressive history with their finances. This effect in financial lending is now being seen in an unlikely country, a country not known for financial enterprise, which is Africa.
The current subprime crisis which could be accounted for by the liquid status of the financial market is also due in part to the billions of pounds in mortgages to individuals who had little or no chance of ever making repayment on such loans. Financial institutions felt they were in such a bind during the period of recession in the 1990’s and 2000’s they made the choice to lower their standards in their lending practices. At that time, lenders had a surplus of money and were trying to devise new ways of marketing their finances to home owners and even to the first time buyers.
This is how lenders eventually got to the point where they were adverse credit mortgage products to almost anyone who applied. Subprime mortgage were not the only loan products available at the time and while they may have triggered the crisis and collapse of the global financial markets they were not the only contributor.
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.
The difference with the African market is that the home loan market is not flooded. This is because a lot of African people don’t even use financial institutions. There are very few people who have the ability or the desire to become home owners.
Nevertheless, the possibility of the banks in Africa offering any mortgage products to people with poor credit is remote. The main reason for this is that most of Africans have no credit record. Because of this, it is difficult to judge them based on credit history. The criteria for home loans here are steady employment, and the amount of salary. In addition, in this part of the world, it is the employer who deducts the mortgage installments from salary and pays it to the lenders. Therefore, borrower does not have any way to default per se. Since this reduces the lender’s risks, borrower is compensated with lower rates of interest on mortgage.
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.
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.
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