HILTON TARRANT: FNB’s third quarter home loans quarterly report came out today. Ewald Kellerman is head of sales at FNB Home Loans.
Ewald, some interesting research – if we look back at the boom time, 2007, the applications you were receiving from those who are self-employed, or those who are running small businesses, were pretty much one in four back then. Today that number is only one in eight. So the number has halved. Your thinking behind the reasons for the decline?
EWALD KELLERMAN: Yes, Hilton, I think it was a very interesting conclusion that we got to when we started looking at the data, and we have realised that a lot of our consumers have faced significant economic stress from 2008 up until now. But I think what’s so interesting about this is that it seems that small businesses are facing a lot more pressure, and are perhaps a bit more volatile from an economic perspective. And small business is not doing well enough to increase the number of self-employed individuals actually qualifying or applying for new home loans.
HILTON TARRANT: It is difficult for a bank to ascertain whether a self-employed individual or a small business owner can actually qualify for a home loan, given how small businesses owners run their businesses and pay themselves last after every other thing is paid.
And perversely, I guess, employees of those businesses will find it easier to get home loans than their bosses.
EWALD KELLERMAN: Yes, that’s quite a big anomaly that we are seeing, that a lot of these employees of businesses are qualifying for loans while we often turn away the employers.
From a banking perspective we look at a company and the cash generating-ability of that company. But at the same time the owner is trying to reduce as much of the profit to try and reduce the tax burden that they pay. So typically a small business owner would run a lot of personal expenses through his business, thereby sort of diluting the profit that he shows and diluting the earnings that he declares to the Receiver.
But when he comes to the bank for home loan finance he obviously wants to push it up. And if we use the same set of financial statements it does seem like those owners earn a lot less money. So it is a lot more difficult lending to the owner of the business than it is to the employees working for him.
HILTON TARRANT: Ewald, if we look at the market more broadly across the board, as far as home loan applications and approvals are concerned, are those looking better? What can you tell us there?
EWALD KELLERMAN: Well, I think, Hilton, the market has been fairly flat and we expect it to stay fairly flat going forward. But I’m very comfortable with where the home loan market is at the moment. What I like about where we are now is that the property prices have reduced in real terms quite significantly, so we’ve seen a little bit of nominal growth. But, because inflation is higher than property price growth over the last five years or so, I think property prices are a lot healthier. We’ve obviously grown too fast in the earlier part of the last decade, but we’ve recovered to such a large extent that I think it is a healthy market to buy a property, to invest in property, and for banks to lend more money in the home loan market. It does seem like the rest of the market agrees if you start seeing activity picking up slightly.
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