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Home loan lending practices not only perpetuate exclusion, but increase inequality gap

Mmamoloko Kubayi
By Mmamoloko Kubayi
29 Aug 2024
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We have no desire as government to have an antagonistic relationship with financial institutions. They are an important sector in facilitating the effort to meet the demand for housing in South Africa.

Access to housing in our country, like so many other aspects of our lives, has been defined and shaped by our apartheid past. In the past, stringent restrictions had been placed on previously disadvantaged persons as to what type of property they could own, where they could live and what financing instruments they could access.

This situation was even more devastating for black women because under customary law, a woman was generally regarded as a minor under the guardianship of her father, husband or brother, incapable of owning or acquiring property.

We therefore cannot view access to housing in South Africa through the lens of what the American philosopher John Rawls called the “veil of ignorance” — the real existing situation demands our scrutiny and deliberate corrective action. After 30 years of democracy, it is important to take stock on what has been achieved in moving the country towards more equitable access to home loans.

Read more: After the Bell: ANC ministers spout more rubbish about banks

The Home Loan and Mortgage Disclosure Act (HLAMDA) was promulgated in the year 2000, and the act intended to compel financial institutions to disclose information about their lending activities and practices in the home loan market.

This information, aimed at promoting fair lending practices, includes “categories of borrowers as may be prescribed” and “geographic areas as may be prescribed”.

The information is disclosed to the Office of Disclosure through the Secretariat, which is within the Department of Human Settlements. With the disclosed information, we are able to unravel the race and gender of the people who are accessing the loans, and in which areas the properties they are acquiring are located.  

With the home loans information currently at the disposal of the office of disclosure, the analysis indicates that the lending patterns are currently skewed in favour of previously advantaged individuals.

Lending patterns currently skewed


The total number of approved applications to previously disadvantaged individuals over five years (2018-2022) is 2,040,599 out of 4,086,342 applications, which equates to 49.9% with a gross amount of R1-trillion, compared to whites with 1,054,420 approvals out of 2,008,144, which equates to 53%.

Furthermore, average approval value for previously disadvantaged individuals is R575,000, while average approval value for previously advantaged individuals is R2,5-million.

I must emphasise, as I did in my media briefing statement, that the data we currently have is incomplete, and the picture we have painted is in accordance with the available data.

The picture painted by the available data tells us that the lending activities and practices in the home loan market not only perpetuate exclusion, but are also increasing the inequality gap. This is happening in a context in which access to home loans for the gap market has remarkably decreased in the past five years.

Factors that drive unaffordability


The factors that drive unaffordability of housing for the gap market include high interest rates resulting in the high cost of living, limited access to finance, higher property prices, high level of indebtedness and limited supply of affordable housing.

In accordance with Section 26 of the Constitution, which says that “everyone has the right to have access to adequate housing” and that “the state must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of this right”, the state has an obligation to resolve housing problems.

By complying with the act and disclosing information about lending and practices in the home loan market, financial institutions will greatly assist government in fulfilling this obligation.

Read more: Human Settlements to give ‘missing middle’ a helping hand for access to housing

To meet the housing needs of the gap market, government has interventions such as First Home Finance, social housing, and the Rapid Land Release Programme to encourage people to build for themselves. 

With limited resources, government on its own will not be able to meet the demand any time soon.

Creating an enabling environment


The aforementioned interventions are part of the effort to create an enabling environment for crowding in private sector investments into the development of housing stock, especially in the affordable housing market. The participation of financial institutions in this effort cannot be emphasised enough.

Financial institutions have been reluctantly complying with HLAMDA, which has compelled us to consider amending the act.

Accordingly, we are considering amendments in the following areas: 1) strengthen or enhance the powers of the Office of Disclosure to be able to investigate home loans consumer complaints; (2) increase the penalty amount from R100,000 to a higher amount for noncompliance; and (3) include or strengthen the requirement for auditors to audit the returns in order to improve the quality of information on the returns submitted by banks.

Our call for compliance with HLAMDA and promotion of fair lending practices should not be misconstrued as a demand for financial institutions to engage in reckless lending nor a demand for violation of the Protection of Personal Information Act (Popia).

We have no desire as government to have an antagonistic relationship with financial institutions. Our desire is to build an inclusive and spatially integrated country in which there are no discriminatory practices and there is equitable distribution of wealth.

Financial institutions are an important sector in facilitating the effort to meet the demand for housing in our country.

To increase the impact of our efforts, it is important to work collaboratively so that there is transparency and fairness in the lending activities and practices in the home loan market, and disclosing information in this regard in accordance with HLAMDA will be critical. DM

 

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