Last week, newly-appointed Minster of Human Settlements, Mmamoloko Kubayi, revealed government’s plans to amend the Home Loan and Mortgage Disclosure Act (‘the Act’) to require banks to disclose additional information regarding their lending criteria, practices, and activities.
Promulgated to encourage ‘fair lending practices’, the Act compels financial institutions to disclose information relating to the provision of home loans to the Office of Disclosure. Under section 3(1) of the Act, financial institutions must disclose various information in respect of home loans, including the number and amount of completed home loan applications received during a financial year concerning prescribed categories of borrowers and geographic areas. In addition, financial institutions are obligated to disclose the total number and rand value of declined home loan applications – and the reasons for said rejections – in respect of prescribed categories of borrowers and geographic areas. Further details of these requirements are outlined in the Regulations to the Act.
According to government, an analysis of information submitted to the Office of Disclosure reveals declining affordability and a clear decrease in the number of home loan applications, particularly among the ‘gap market’. Comprised of persons who earn between R3 501.00 and R22 000.00 per month, the gap market neither qualifies for fully subsidised housing programmes nor can they readily access home loans. From 2018 to 2022, approximately 6 million mortgage bond applications were received and processed by banks in South Africa, with just over 3.4 million approvals. Overall, factors impacting the affordability rate include high interest rates, which increase the cost of living, constrained access to financing, higher levels of indebtedness, and limited availability of affordable housing.
Expressing particular concern over the home loan rejection rates of historically disadvantaged persons and allegations of racial profiling by banks, the Minister revealed that more detailed information from financial institutions is required to improve access to home loans. To further encourage stringent adherence to disclosure requirements, government intends to increase penalties for non-compliance. At present, failure to disclose prescribed information to the Office of Disclosure constitutes an offence and attracts a maximum fine of R100 000.00. To that end, an amendment to the legislative regime forms part of a wider effort to promote equitable access to home ownership, facilitate spatial transformation, and ameliorate racial disparities.
In response, the Banking Association of South Africa (‘BASA’) has vehemently disputed the allegation that financial institutions unfairly discriminate against historically disadvantaged persons. Given that banks are in the business of lending through the provision of financial services and products, BASA stresses that its members are thus economically incentivised to lend as frequently as possible.
While banks establish their own business and risk criteria for granting home loans, BASA emphasises that financial institutions are statutorily mandated to comply with the affordability criteria for responsible lending outlined in the National Credit Act to protect applicants from becoming over-indebted. According to information supplied by BASA’s members, 48% of home loan applications are rejected because of a lack of affordability, 34% of applicants lose out because of an unfavourable credit record, and approximately 13% of rejections are due to unacceptable security.
For further information or to get in touch with an attorney specialising in the registration of mortgage bonds, contact us at info@stbb.co.za.
