Maybe a holiday is just the medicine we need?

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71point4 > Blog archive > 2020 > March > 20 > Maybe a holiday is just the medicine we need?

Maybe a holiday is just the medicine we need?

Posted by: Illana Melzer
Category: Covid-19, Credit, Housing, The Transaction Support Centre

For many South Africans the effect of the current crisis will not be a major medical emergency, but rather a financial one. The current pandemic might just be the straw that breaks the camel’s back for many consumers and businesses after years of low economic growth.

South Africans are not known for their savings culture even in the best of economic times. Bad financial habits might be catching up with us, as we are now expected to dip into our non-existing rainy-day funds to cover regular expenses. With the current shutdown in place, many employees may not earn their expected incomes over the next few months. For those who have mortgages, a good percentage of that income would have been earmarked for repayments on the nearly one trillion rand owed on residential mortgages [1]. If this crisis continues, South Africa might be looking at a high number of mortgage defaults in the short to medium term. And, as we know from the 2008 housing crisis, large scale defaults can have an extremely negative economic impact.

Many other countries have already implemented short term interventions to protect borrowers and the financial sector from the impact of widescale default.

Figure 1: Selection of countries and what they have done with regards to mortgage payment during the pandemic

Data source: See references for list of data sources

It would be surprising to see any lenders (or landlords) evicting delinquent payers under these circumstances. No doubt banks and regulators in South Africa are actively exploring which mechanisms to support distressed households might be required here, and how they would be funded.

But beyond this particular crisis – which will pass – it is critical that we explore longer term measures to support lending going forward. South Africa’s mortgage market never fully recovered from the 2008 crisis. In 2007, 14.5% of households in South Africa had a mortgage. By 2016, this had declined to 9.7% of households. The lending that did occur during this period was limited to a relatively narrow market of higher-value properties. Based on an analysis of deeds registry data from CAHF’s CityMark, recovery in mortgage lending between 2008 and 2018 was limited to properties valued in excess of R900 000. And of the 116,968 mortgages granted in the first three quarters of 2019 across the whole country, 98% were taken up by borrowers who earned in excess of R15 000 per month[2].

Figure 2: Number of mortgages originated in South Africa by market segment (2008-2018)
Number of mortgages 2008 - 2018

Data source: CityMark data provided by CAHF (2019)

We might be breathing a sigh of relief right now. Limited access to mortgages has had a positive, albeit totally unforeseen, benefit for lower income households; that they were unable to access mortgages means they do not need to pay them back. But going forward, these lending patterns are clearly sub-optimal. South Africa’s sophisticated financial sector does not serve the vast majority of income earning property owners who can only access expensive, unsecured credit. Households cannot leverage their housing assets and property markets perform poorly, limiting the potentially transformative impact of government’s subsidy housing program.

Research by 71point4 and CAHF as well as the learnings coming from the Transaction Support Centre[3]has highlighted a number of barriers that limit access to mortgages for lower income households[4]. These include poor governance in lower income areas, limited access to formal mechanisms to transact as well as high levels of indebtedness in lower income households. The research also highlighted the lack of appropriate insurance mechanisms to support lower income borrowers who are exposed to many income and expenditure shocks. The Covid-19 pandemic demonstrates just how important this is. If we want to see a broader recovery in mortgage lending post this particular crisis, we will need to add this to our long list of critical interventions to support mortgage market development in South Africa.

Authors: Abri de Beer, Illana Melzer

[1] Muller, J. 2019. Banks’ mortgage appetite rebounds [WWW Document]. Financial Mail. URL (accessed 3.19.20).
[2]National Credit Regulator Consumer Credit Market Report Q3 2019
[3]The Transaction Support Centre is an action-learning research initiative established by 71point4 and CAHF that aims to formalise property markets in low-income areas through hands-on support and assistance to existing and prospective property owners. At the same time the TSC uses the evidence its gathers through its on-the-ground efforts to drive systematic change. Read more about the project here:
[4]Melzer, I., Hayworth, C. 2018. Bringing Life to Mortgage Markets in South Africa. Prepared for the Centre for Affordable Housing Markets in Africa (CAHF).

Alini, E., 2020. Coronavirus: Canada’s big banks to allow mortgage payment deferrals [WWW Document]. Global News. URL (accessed 3.19.20).

Bray, C., 2020. HSBC, other banks cut Hong Kong mortgage borrowers some slack as coronavirus outbreak sends small businesses into tailspin [WWW Document]. South China Morning Post. URL (accessed 3.20.20).

CNBC Africa, 2020. How Rwanda, Kenya & SA’s COVID-19 responses compare [WWW Document]. CNBC Africa. URL (accessed 3.19.20).

Collinson, P., 2020. UK banks set out details of Covid-19 mortgage holidays [WWW Document]. The Guardian. URL (accessed 3.19.20).

Cork News, 2020. Irish banks agree to mortgage and loan freeze for customers affected by coronavirus measures; contactless payment limit to increase [WWW Document]. URL–2ee4216a-1067-480c-99ba-eabe0b27d702-ds (accessed 3.19.20).

de Wit, R., 2020. Coronavirus – Mortgage Moratorium [WWW Document]. CAB Spain. URL (accessed 3.19.20).

Financial Services | Staff Reporter, 2020. HSBC Singapore floats relief measures for mortgage, credit card customers [WWW Document]. Singapore Business Review. URL (accessed 3.20.20).

Fonte, G., Segreti, G., Flak, A., 2020. Payments on mortgages to be suspended across Italy after coronavirus outbreak – Reuters [WWW Document]. Reuters. URL (accessed 3.19.20).

Lim, I., 2020. Covid-19: Anwar warns economic recession increasingly probable, urges more cash handouts [WWW Document]. Malay Mail. URL (accessed 3.20.20).

The Will, 2020. BREAKING: CBN Cuts Rates On Loans, Creates N50bn Fund In Response To Coronavirus Crisis [WWW Document]. The Will. URL (accessed 3.20.20).

Victor, M., Dombey, D., 2020. France, Spain and UK unleash rescue packages to help companies [WWW Document]. Financial Times. URL (accessed 3.19.20).

Author: Illana Melzer

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