THE reduction in the building societies’ statutory reserves ratios will not resuscitate the mortgage lending business which is under pressure from ris
ing inflation and high interest rates, market players said this week.
Central bank governor, Gideon Gono, in his mid-term monetary policy review, slashed the building societies’ statutory reserve ratios by five percentage points to 30%.
“The reduction in the statutory reserve requirements will not be immediately translated into increased mortgages because of the prohibitive conditions,” said CB Richard Ellis managing director Abraham Sadomba.
Sadomba said the reduction meant more funds for mortgages, but lending rates were still prohibitively high to attract prospective property owners.
“At least 90% of the working population in Zimbabwe will find it difficult to borrow a $1 billion loan,” he said.
Local building societies have been facing problems in the mortgage lending business due to high inflation which has significantly eroded disposable incomes.
The institutions said high inflation, currently at 1 184% and the erosion of disposable incomes have made mortgages unaffordable for many people.
Building societies said they could not cut the rates as this would significantly reduce margins.
“The mortgage lending business is performing badly in that potential clients are unable to borrow owing to economic challenges,” said Kevin Terry, managing director of Central Africa Building Society (Cabs).
Terry said high lending rates, together with the escalating property prices, had made it impossible for individuals to match mortgage repayments from salaries.
“In terms of our current lending rate of 250%, a person earning $500 million would only be entitled to borrow $600 million because his repayment per month should not exceed a quarter of his salary,” Terry said a few days before Gono’s policy announcement.
Terry said the mortgage lending business could be profitable only if the lending rates were pegged at levels that were commensurate with fundamentals on the market.
An official with one building society said they were only lending to corporate clients trying to avoid penal rates on commercial bank loans.
“We are lending more to corporates than individual mortgage borrowers,” the official said.
A mortgage officer from Beverly said it had become difficult for mortgage loans to keep track with property prices.
The Association of Building Societies says that 5,5% of residential accounts remained in arrears on a month-on-month basis since 2005, highlighting the risk of mortgage defaults under current economic conditions.