Up to 12 people can now apply for a single FNB home loan

FNB has launched a stokvel-type of home-loan product, “an industry first” in SA's property lending market.

The bank's new collective home loan is an attempt to help solve the challenge of the chronic shortage of affordable housing in SA.

Many

factors contribute to the problem, including that new housing stock is

too expensive for many people, as well as the perceived risk of lending

to middle low-income consumers.

FNB's product seeks to solve the

financing challenge. The bank will allow as many as 12 people to come

together to apply for a bond. Buyers can team up with eight people,

including spouses, when applying through digital channels - or 12 if

they apply in a branch through a sales consultant.

The

group can collectively decide how much each person will contribute

towards the monthly instalment, and FNB said it can easily split the

monthly debit order to suit the group's needs.

Even though the

product primarily wants to solve the challenge of financing affordable

housing, FNB said it has designed it to serve more affluent customers

too.

Why collective buying？

We know that

this is something that is already happening. We know of stokvels,

people buying properties together to enable access into homes. So, the

collective buying value proposition was born from that, said FNB Home

Finance Growth Head Mfundo Mabaso.

He said because associating in

groups is something South Africans love and do a lot of through

stokvels, as well as burial and investment societies, it seemed like a

sensible solution to bring to the mortgage space to enable affordability

and homeownership.

Mabaso said FNB spent some time testing

whether this would work. Its observation of long-term trends confirmed

that people who jointly apply for bonds have higher chances of getting

approvals.

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Mabaso

said another observation was that buyers in the low end of the market

are generally looking for family homes. Many are collectively buying it

as siblings or are co-applicants with their parents.

Vanashree

Naidoo, CFO at FNB Savings and Investments, said this product also aims

to give low-income earners comfort that should something go wrong, like

retrenchment, they will have some financial cushioning and possibly

avoid losing the roof over their heads.

Risks and responsibilities

Importantly,

once signed, a collective home loan will be a credit agreement like any

other. So, applicants will need to go into it with people they really

trust and those with strong credit profiles.

All

the buyers will be jointly and “severally” (meaning each person will be

responsible for their portion) liable for the debt. The downside of

that is that if one person defaults on their monthly instalment – in the

case of those who chose to split the debit order across all or multiple

participants – the account will go into arrears if the other members

cannot settle the shortfall.

This will negatively impact the

credit bureau profile of all participants in that arrangement, as

everyone is jointly and severally liable for the loan as the bond and

the property will be registered in each of the names, said Naidoo.