Highlights

• The uncertainly of BASEL III is restricting worldwide mortgage lending.
• South African President hints at foreign ownership ban.
• 90% mortgages now available in Ireland.

Commentary

To prevent the repeat of another financial crisis, the G20 is looking to increase the amount of capital banks have in reserve and introduce closer supervision of systemic risk at local and international levels. Under the proposed new rules known as Basel III, banks will have to hold top quality capital totalling 7% of their risk bearing assets, which represents a significant increase from the 2% currently being enforced. A big knock on effect of these new rules (should they be agreed) is that banks will have to raise hundreds of billions of Euros in fresh capital over the next 8 years in order to hit agreed benchmarks. While banks will not be expected to go from a 2% reserve to 7% overnight, two of the biggest effects these changes could have on mortgage lending are: 1) banks may hold back on the amount of capital they are lending through mortgages so to build up and maintain an adequate cash reserve 2) the number of fixed rate mortgage products may decrease, as securing such rates on the futures market can tie up more capital. We have already seen the uncertainty surrounding these proposed changes has causing some of the more cautious international banks to adjust their mortgage lending policy and pricing strategy over recent months and other banks may follow suit until a exact policy has been agreed. It therefore may be prudent for property investors to take advantage of low fixed rate or high loan value mortgage deals while they are still being offered by the banks.

South African president Jacob Zuma gave a strong indication, while speaking at  a recent rally, that he is considering a ban on property ownership by foreign nationals. Zuma and his government are looking to introduce a land redistribution policy in order to help readdress the seizure of black property under the white minority rule which ended in 1994. In order to have more land available for reform and restitution, the government is proposing land leases be introduced for foreigners, with land ownership reverting back to South Africans. Currently mortgages are available to foreign nationals in South Africa up to 50% loan to value with typical interest rates starting at 9%. If the reform does come into effect we are hopeful that mortgages will continue to be available for foreign buyers although perhaps under slightly different terms.

Due to cheap flights and low property prices, Ireland is fast becoming a popular destination for UK property investors, as evidenced by its steep rise in our mortgage enquiry chart this month. In response to this demand an Irish lender is now offering 90% loan to value mortgages for foreign national owner occupiers, at interest rates starting from just 4.2%. Fixed and variable rate mortgages are available for individuals up to the age of 70, with no interest only option currently available. More information on these Irish mortgages can be found on our website.

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