Loan-to-value ratios introduced

Loan-to-value ratios introduced The Bank of Namibia recently announced the introduction of loan-to-value ratios, which will in future require home owners to put down deposits on subsequent properties bought.

Explaining the concept, the central bank's director for strategic communications and financial sector development, Emma Haiyambo, said: “The Bank of Namibia hereby notifies the public of the introduction of loan-to-value ratios (LTVs) applicable to all prospective applicants for a second or subsequent home loan for residential property.”

LTV is the ratio of the amount of money borrowed from a bank to purchase a property in relation to the purchase price of the property or the valuation of the property, whichever is lower. The regulations relating to restriction on LTVs were gazetted on 3 August 2016 and will come into effect on 22 March 2017, she said.

These regulations will reduce banks' risk of exposure to home loans, which constitute 50% of the total loans granted in Namibia.

“This exposure, if left unchecked, could potentially pose a significant risk to financial stability in Namibia,” Haiyambo said.

“After the coming into effect of these regulations on 22 March 2017, prospective home loan applicants for a second or more home loans for non-primary residential properties will be required to pay a percentage of the purchase price or market value of the property as a deposit. The commercial bank providing the loan to the prospective buyer will finance the remaining percentage of the home loan,” she said.

According to Haiyambo, the LTV for a second home loan is set at 80% of the purchase price or market value.

“For example, if the value of the second property the prospective applicant wants to buy is N$1 000 000 the bank will finance N$800 000 and the applicant will be expected to pay a deposit of N$200 000, or 20%, upfront.

“In the event that the home loan for the first residential property has been paid off completely, the prospective home loan applicant will be treated as a first-time buyer and therefore will not be required to pay a deposit when taking a subsequent home loan to buy an additional property. The regulations will give prospective first-time home buyers a better chance of owning a home as they will be exempted from paying any deposit,” Haiyambo said.

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