FNB has confirmed that they will be pulling approvals for home loans on a large scale. Many seem to have been caught by surprise. Fools.
To an outsider, it appears that FNB made a mistake in underestimating the trouble in the property market when they first gave these approvals. Their estimates of property price growth, interest rates and overall affordability were sufficiently incorrect that they have been required to publicly back-track. This decision would not have been taken lightly and must reflect serious concerns on the part of FNB management around future recoveries on these approved loans. So we aren’t talk about slight optimism either.
But again, many are surprised that one of our four large banks would get to this stage. Fools.
The property market only goes up. It’s a sure thing. Maybe the market will be flat for a while, but overall you will always make money. Property market cycles are long, due to the slow nature of supply reacting to demand and banks reluctance to sacrifice market share for profits. Markets do strange things, stranger than this.
Few remember that life insurers cut bonuses, previously thought to be guaranteed set-in-stone never to be removed during the troubled markets of the late 1990s.
So, if a bank recognising that property prices are not heading up and borrowers on 100% loans will be in negative equity positions for several years, why would we not expect them to take appropriate action?