As predicted by property expert Modiredi Maruping last year, confidence is slowly creeping back into the banking sector. Over the past few years, the banking sector was hit by a liquidity crisis that made it difficult for consumers to access financing for property projects.
Banks reduced the amount of funds they were willing to borrow consumers. While they previously provided financing at either 100 percent or 90 percent of the value of property, the banks lowered their financing to 70 percent when the property market swung low. This forced consumers to pool a higher amount of their own funds to make up for the shortfall. The problem however was that consumers did not have the excess capital needed to buy properties. The decision by First National Bank Botswana (FNBB) to start offering 100 percent financing could be an indication that banks are gradually finding their footing. Participation in the property market is often determined by the availability of money, which therefore suggests that those without funds are disqualified from owning homes.
Pundits have often called on the banking sector to respond to the challenges faced by potential home owners and improve access to financing. It seems FNBB has heeded to the call, as it recently introduced a mortgage financing solution called ‘FNB 105 % mortgage offering’ targeted at first time home owners. According to FNBB, the offer allows the bank to consider financing up to 100 percent of the purchase price plus an additional five percent of the purchase price which will go towards legal and administration fees. The new FNBB product was motivated by the considerable appetite shown by clients, who seek to own property within urban and peri-urban areas; who however have to contend with substantial fees associated with buying a home.
“We therefore took it upon ourselves to provide a solution that caters for the needs of first time home owners and eliminate the financial constraints of paying deposit and legal fees. We have also revised the loan tenure upward to 25 years from the previous 20 years. This will boost both affordability and offer relief in the form of reduced instalments,” said FNBB.
To qualify for the loan solution potential home owners must hold an account with the bank, while non FNBB account holders who are interested in accessing the loan will be assisted with opening an account. The loan solution provides financing of up to P1, 2 million which includes legal fees in urban areas for either apartments or houses. FNNB anticipates that the benefits of the home loan solution will extend to both prospective home owners as well as to the broader property market.
“It will empower prospective owners to purchase their homes and this will therefore stimulate the real estate market especially developers, to increase housing developments in order to capitalise on the heightened potential for sales,” highlighted the bank.
In a follow-up interview with Sunday Standard Maruping hailed the home loan solution as a welcome development that will encourage people to buy homes and stimulate the property market. Recognizing that the banking sector had cut back on mortgage financing in the past, Maruping said FNBB’s new offering is an indication that banks are developing a renewed interest in the property sector.
He however cautioned the bank to only give assistance to those who actually qualify for mortgages.
While a longer repayment period provides relief to home owners in the sense of reduced monthly loan repayments the downside however is that it increases the total cost of the loan. In that regard, Maruping advised prospective home owners not to stick to the 25 years just because it is offered by the bank.
“If you can pay the mortgage in 10 years, please do that,” he said.