Central bank explains new home loan finance rule

AS from next Wednesday, prospective home loan applicants of second or subsequent properties will be required to pay a deposit.

The deposit will be on a sliding scale, determined by the number of previous properties financed by the bank. The rule only applies to residential property and not to commercial properties.

The central bank yesterday explained that if you are a first-time house buyer, this directive will not affect you as banks will still be allowed to lend you 100% of the value of the house.

“If you are buying a second house, the banking institution will only lend you 80% of the value of the house you want to buy, and you must provide the remaining 20%,” the bank said.

The bank gave an example that if the value of the house on offer is N$1 million, the amount of money that can be borrowed from a banking institution to purchase that property (for second-time buyers) will only be N$800 000 (80%), and the buyer will have to pay the balance of N$200 000 (20%) from other sources.

“If you are a third-time buyer, you will qualify for a home loan of N$700 000 (70% from the banking institution), and you will have to pay the remaining N$300 000 (30%) yourself. If you are a fourth-time buyer, you will qualify for a home loan of N$60000.00 (60% from the bank), and raise the remaining N$400 000 (40%) yourself.

“All other subsequent home loan applicants (5th, 6th and so on), will be required to pay 50% of the market value of the home,” the bank explained.

The Bank of Namibia said the purpose of the this new rule is to lower the excessive risk the banking industry is exposed to.

“The real estate sector constitutes more than half of the total bank loans and advances. This poses a significant risk to financial stability in Namibia. In addition, the bank would also like to discourage the practice of buying residential properties for speculative purposes,” he said.

By law, banking institutions will be expected to implement the rule as part of their lending policies and procedures.

The central bank on the other hand will be responsible for ensuring that banking institutions comply with the regulation, BoN said.

“If you go to the bank asking for a home loan to buy a house costing N$1million, you will get the full N$1million if you are a qualifying first-time house buyer. If you are a qualifying second-time home loan applicant, you will only qualify for a home loan of N$800 000, and you will have to pay the remaining N$200 000 yourself, and so forth,” the central bank said.

In the event that the first residential property has been paid off completely, the bank said that the buyer will be treated as a first time buyer.

“It is important to note that the measure targets persons with multiple home loans or who are applying to own more than one property while still paying off their first, second, third etc. mortgage whichever the case might be,” he said.

In a recent interview with The Namibian, economist Martin Mwinga, who is the CEO of First Capital Treasury Solutions, said the central bank gets worried when there is an oversupply of money to one sector of the economy, and thus came up with this rule.

“Namibia has seen that most money has recently been going into the residential housing market, and the central bank got worried that this can cause a bubble,” Mwinga said.

Bank Windhoek told The Namibian that policies had been amended already and implemented accordingly.

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