Home Loan Administration
The housing crisis in South Africa is a complex problem, inherited by this generation from our past and still unresolved. Ownership of a property, setting roots to the land and a home to live in are fundamental to a strong, vibrant and stable society. Arguably, home ownership is one of the first steps to economic freedom, providing not only a safe place to live and store possessions, but also allowing an accumulation of wealth through equity in the property – something which can be leveraged to pay for health, education, and other critical needs of which many South Africans are deprived.
Purchasing a house unfortunately remains out of reach for too many of us and new and creative ways must be found to end this cycle. That is why Fairheads Financial Services has developed a loan product which is designed to make property ownership more accessible and affordable.
Pension-backed lending schemes are not new and many banks and other financial intermediaries have served this market. The Pension Funds Act allows members of a retirement fund, subject to the rules of the fund, to use their retirement fund credit as security for a loan. The loan must be used to purchase or renovate a home, or can be used to clear an existing debt which was used for this purpose. There is a limit to the amount that the member can borrow against their retirement fund credit, usually around 60% or 70% (but no more than 90% as prescribed by the Act).
The theory behind these schemes is that the lender’s risk is significantly reduced and the borrower should be compensated with a reduced interest rate. Unfortunately, this has not always proved to be the case with banks providing meagre reductions to their carded rate.
Simply put, the banks have been charging a margin, sometimes quite significant, on loans which are relatively low risk. To make matters worse, there are often high transaction and set-up fees associated with the loans.
A New Approach
Fairheads Financial Services’ approach is different. As an independent pension-backed home loan administrator, we partner with retirement funds to provide loans directly to its members, effectively removing the banks as middle-men and eliminating their cost.
The retirement fund lends the money to its members and the loan is administered by Fairheads.
Not only does this provide the member with a very competitive interest rate, but the interest is actually returned to their retirement savings.
Fairheads Financial Services provides the administration services to funds at a significantly lower cost than many of the banks.
Consider an example of a member who borrows R100 000. The comparison below shows the total costs of the loan over 20 years – the benefits are quite startling.
The Fairheads home loan product can also be used in conjunction with a standard housing loan if the property price exceeds what is available in the member’s fund credit.
We are tremendously excited about the benefits of this new product. We believe that it has the potential to unlock real value for retirement fund members by providing them with the opportunity to purchase their home, something we believe is essential to growing wealth, stability and happiness.
If you would like more information, please contact us on firstname.lastname@example.org or 021 410 7500.