The Banking Association South Africa (BASA) has sharply rejected the Department of Human Settlements’ allegations of unfair discrimination linked to home loan applications.
During a media advisory on 26 August, Human Settlements Minister Mmamoloko Kubayi said the department was pushing for mandatory disclosures from banks on declined home loan applications and the reasons for their rejection.
The Home Loan and Mortgage Disclosure Act (HLAMDA), enacted in 2000, requires financial institutions to disclose information about their lending activities and practices in the home loan market. This information is submitted to the Office of Disclosure, managed by the Secretariat within the Department of Human Settlements. The data provided includes details on mortgages, pension-backed lending, and unsecured lending specifically for home loan purposes.
Kubayi underscored the need to finalise the Home Loan and Mortgage Disclosure Amendment Bill to address allegedly discriminatory lending practices and promote fair access to housing finance. She said in the past, it had only been possible to ascertain the number of home loans granted by financial institutions, but home loan applications that have been declined and the reasons.
Under the proposed policy, banks will be mandated to provide detailed explanations to the government whenever they reject a home loan application. Kubayi noted that, at present, banks can disclose this information voluntarily. However, she added that one of the key considerations in the department’s review of the White Paper is to make such disclosures compulsory.
The minister said the department wants to ascertain whether individuals who say their home loan applications were rejected because of racial profiling have grounds for their complaints.
“We know that the banks don’t think that it is necessary, but we do believe that we have a case to make in terms of forcing them to disclose when they have declined an application and the reasons why they’ve declined that application,” she said.
She identified the penalties for non-disclosure and non-compliance as another “legislative challenge”. She said the penalties are insignificant to compel compliance. The goal is to impose stricter penalties to ensure adherence to the regulations.
“Because if you are going to ask a bank to pay R100 000 for a non-disclosure, it’s nothing in terms of their revenue. They don’t feel the pinch. They don’t feel the impact. So, one of the issues that would want to do is to increase the penalties so that disclosures are done. But this is in the interest of South Africans who are trying to have a shelter above their head,” she said.
In response, BASA said banks also have South Africans’ best interest at heart. The association noted that banks hold in trust the savings and salaries of South African workers, professionals and businesses.
“This makes up approximately 75% of the funding of banks, and they have a fiduciary responsibility to protect these depositors’ funds. Because of this, the country’s banks are strictly regulated by the relevant authorities to ensure that they do not lend recklessly and that those who are lent depositors’ funds are able to repay their loans, thereby protecting the savings that need to be available on demand,” BASA stated.
What the numbers say
Kubayi said the Office of Disclosure is a critical element in achieving spatial transformation and integrated human settlements. She said, currently, the information it receives is riddled with data duplication and incompleteness.
“Without data quality control and non-compliance by financial institutions, the picture we have just presented could be worse than we think. It is therefore important that this Office be given all the necessary support including legislative amendments to strengthen its ability to discharge its responsibilities,” she said.
The minister voiced concern over the large number of people who still cannot access housing. Between 2018 and 2022, just under six million mortgage and home loan applications were received and processed, with two million coming from previously advantaged persons (PAPs), resulting in just over one million approvals.
An analysis of applications from historically disadvantaged persons (HDPs) showed that about four million applications, valued at R2 trillion, were submitted over the five-year period. Although there was a steady increase in applications, the numbers slowed down in 2020 because of Covid-19.
“The total number of approved applications over five years is 49% of the total valued at R1 trillion compared to a decline which is valued at R636 billion, and approximately half of the applications are declined, which is an indication the number of people who can’t access housing is still high,” said the minister.
She also highlighted that the number of “HDPs applications is twice as high as that of their white counterparts”. Furthermore, “the average mortgage loan approved per HDPs was R527 000 compared to PAP at an average mortgage value of R2.5 million, which still indicates wealth inadequate,” Kubayi explained.
The minister also pointed out that more applications from women (1.3 million) were approved compared to those from men (1.1 million).
Why home loans are being declined
High interest rates, the rising cost of living, limited access to finance, higher property prices, high levels of indebtedness, and a limited supply of affordable housing were cited as key factors contributing to the unaffordability of housing.
According to BASA members, 48% of home loans are declined because of a lack of affordability, 34% because of an adverse credit record, and 13% because of unacceptable security.
“A lack of affordability and an adverse credit record is more often than not a result of the weak economy that has created persistent unemployment and economic hardship.”
The association stated that every bank has its own business and risk criteria for extending home loans and other forms of credit – “race is certainly not one of them”.
The National Credit Act sets out the affordability criteria for responsible lending, to which banks must adhere, to ensure that customers do not become over-indebted.
“It is the business of banks to lend using financial products and services, like home loans. As such, they are incentivised to lend as much as possible. Banks do not want to turn away customers,” BASA stated.
Mind the gap market
In Kubayi’s presentation on mortgage approvals for lower -medium-income brands (R0-15,000), the Office of Disclosure’s analysis of the past five years showed a concerning trend in the affordability of housing for the gap market.
The gap market group, those earning between R3 501 and R22 000 a month, neither qualify for fully subsidised housing nor can they easily secure mortgage finance.
The minister noted that the decline in the approvals in the gap market is quite significant, and this indicates that access to mortgage finance for the gap market is becoming increasingly difficult.
A trend analysis on gap market affordability and access to housing found that just under three million of those applications were declined.
Kubayi said the department’s concern extends beyond those who formally applied. She noted there are many people who test their affordability online, only to be discouraged from applying when the app indicates they don’t qualify. She said others might visit a bank branch, enquire about a mortgage, present their payslip, and are told outright that they don’t qualify.
“They don’t apply. So, we believe that there’s more in terms of South Africans, beyond the three million, that are trying to have access to a house, and they are not able to get it.”
Kubayi pointed out that while the approval rate for previously advantaged individuals sits at 53%, the rate for HDPs is lower.
She said this was a trend the department is monitoring closely.
She highlighted the stark disparity in mortgage values, noting that the average mortgage loan approved for historically disadvantaged individuals is about R527 000, whereas for previously advantaged individuals, it’s R2.5m.
“We are saying we are dealing with triple challenges in the country: poverty, inequality, and unemployment. So, when we look at this rate, and what we are seeing here, it perpetuates and continues to increase in terms of our inequality in South Africa,” she said.
‘Legal obligation to ensure data remains secure’
BASA noted it has long acknowledged that the racial inequalities in wealth and ownership in South Africa have their roots in apartheid. It has partnered with the government to bolster inclusive economic growth and the transformation of the economy.
“However, it remains primarily the responsibility of government to create an enabling operating environment, so that companies can grow and create jobs, allowing South Africans to meet the affordability requirements set out in law.”
The association said that “allegations of unfair discrimination by banks remain unfounded and are frankly irresponsible”.
“BASA and its members are opposed to unfair discrimination of any kind. To date, no BASA member bank has been found guilty in a court of law of systemic or institutionalised racism.”
The association added it has had several engagements with the Office of Disclosure and the department about the HLAMDA.
BASA stated although it supports the intention of the Act – the promotion of fair lending practices – banks also have a legal obligation to ensure their data and their customers’ personal information are secure.
“Banks also need to be certain there are appropriate regulations in place. BASA continues to seek clarity on the steps taken thus far to amend current legislation to reflect the additional information and reporting requirements. Engagements with the Office of Disclosure as well as the department are ongoing,” the association said.
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What utter rubbish! A privately owned business can do business with whom they choose to! If they don’t want to do business with a client, it IS THEIR RIGHT TO DELINE THE BUSINESS!! This attitude by the government to dictate WHO, WHAT, HOW AND WHY is socialism at its best.