Savings

Savings

Savings for housing is an under-developed area of product innovation and development in South Africa, and indeed in other countries in the region as well.  The issue of LTVs is of course a key area of focus in the United States.  In South Africa, however, where savings rates are generally very low and households operate on the edges of their affordability, 100% mortgages are not uncommon in the low-moderate income market, even when lower LTVs are imposed in the higher income markets.

Of course, high LTV mortgages create risk concerns for lenders, and this is reflected in the premium applied on interest rates.  Further, low levels of savings undermine household affordability especially for new entrants into the property market who don’t have equity from previous properties.  In research done recently for South Africa’s Financial Sector Charter Council towards a next phase of FSC targets, the role of savings in housing was emphasized and specifically, it was recommended that policy should include a sort of incentive scheme towards savings for housing.

While more and more people within the sector are speaking about savings

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Savings for housing is an under-developed area of product innovation and development in South Africa, and indeed in other countries in the region as well.  The issue of LTVs is of course a key area of focus in the United States.  In South Africa, however, where savings rates are generally very low and households operate on the edges of their affordability, 100% mortgages are not uncommon in the low-moderate income market, even when lower LTVs are imposed in the higher income markets.

Of course, high LTV mortgages create risk concerns for lenders, and this is reflected in the premium applied on interest rates.  Further, low levels of savings undermine household affordability especially for new entrants into the property market who don’t have equity from previous properties.  In research done recently for South Africa’s Financial Sector Charter Council towards a next phase of FSC targets, the role of savings in housing was emphasized and specifically, it was recommended that policy should include a sort of incentive scheme towards savings for housing.

While more and more people within the sector are speaking about savings and how it might be linked with housing credit, there is very little research on the scope of savings, currently, for housing purposes, and how this is organised by service providers and the savers themselves.  We know that people save formally and informally through a variety of channels, and that often these savings are used for housing.  We don’t know how often, however, or what the different drivers are towards enhanced savings.  We are also unaware of what the options for an incentive-based commitment scheme for housing might be.  Is there a role for government in this arrangement, and if so what sort of support, or is it something that can be managed without state support?

Areas of focus for this project includes (1) review of existing practice; (2) identification of national and regional economic drivers and inhibitors towards savings for housing, including macro-economic factors, policy and legislative factors, and linkages to the housing supply chain; and (3) recommendations for both public and private practitioners to develop approaches that enhance savings for housing proposes.