Credit-shy lenders are now making it even harder for first-time buyers to get on the property ladder as they balk at giving loans for flats and sectional title townhouses.

That’s the word from Dr Willie Marais, national president of the Institute of Estate Agents (IEASA), who says: “It’s almost like the old redlining days. Again our members are reporting that there are blocks and areas where potential buyers are finding it almost impossible to get loans, no matter how good their credit record is or how much cash they have as a deposit.

“They only have a chance of accessing home loans if they are prepared to buy in more upmarket blocks or areas – which once again raises the issue of affordability for first-time buyers.”

The problem is twofold, he says. Firstly the banks are worried in general about job losses in the current economic climate and the ability of borrowers to keep paying their instalments if that should happen.

“And secondly they’re worried about the indirect effect of the economic downturn on sectional title schemes such as apartment blocks and townhouse complexes. People in financial trouble often don’t pay their levies, which puts bodies corporate under pressure and can cause schemes to fall into disrepair, which in turn lowers the value of the homes that are the collateral for loans.

“Consequently, we are once again seeing lenders make decisions more on the predicted value of the collateral than on the capacity of the borrowers and ironically, falling home prices which should make it easier for first-time buyers to become homeowners are in many cases working now against them.” 

Buyers are being advised to find schemes or areas where property values are stable or still rising if they want a loan.

“Meanwhile, our advice to potential buyers is to look very closely at the financial statements of any sectional title scheme where they are considering a purchase, so that they can make a good case for a loan when they apply to a lender. And as things stand, they should definitely not buy into a scheme where there is a risk that the banks will stop lending, as it will then be extremely difficult for them to onsell in future.

“In addition, they need to work closely with experienced, knowledgeable agents in their chosen areas who have good working relationships with mortgage originators and lenders and who can direct them to schemes where loans are available.”

Issued by the

Institute of Estate Agents of SA