Is The Sky Falling Again?

January 15, 2008

Watching the news, it’s easy to get the impression that the sub-prime mortgage crisis in the U.S. spells doom and gloom for home owners and buyers across the globe. But, the truth is, South Africa ’s housing and mortgage markets remain healthy. Consider these facts, and relax!

  • Many people mistakenly believe that a mortgage with an interest rate below the Prime rate is a sub-prime mortgage. This is not the case. A sub-prime housing loan is specialized type of lending product often the last resort for borrowers in the U.S. with credit challenges or the inability to prove their income.
  • The U.S. sub-prime market represents only about 10% of the U.S. mortgage loan market
  • South African local banks do not offer sub-prime mortgage loans and very few local financial institutions have any exposure to low grade U.S. residential mortgage-backed securities.
  • Unlike the U.S. , the South African housing market has not been inflated by irresponsible lending practices. South Africa ’s long-term economic fundamentals remain strong and these fundamentals have not changed.