Martin Endjala
The Bank of Namibia (BoN) has announced that Namibians will no longer be required to make a deposit on their mortgage when acquiring a second residential property through commercial banks.
BoN announced yesterday that the Loan-To-Value ratio has been relaxed to make it easy for members of the public who wish to purchase additional properties.
According to the central bank Deputy Governor Leoni Dun, the Loan-to-value ratios for purchasing multiple homes through mortgage bonds to mitigate financial risks were relaxed following a new regulation issued by Minister of Finance and Public Enterprises Iipumbu Shiimi, on the recommendation of the Bank of Namibia, which came into effective on 31 October 2023.
This means that the new regulation provides for a further relaxation of loan-to-value ratios, particularly concerning additional property purchases. As such, a mortgage loan for a second residential property no longer requires any deposit, while mortgage loans for third and subsequent residential properties only require a 10 percent deposit.
The Deputy Governor explained that recent economic conditions and shifts in the Namibian property market prompted these changes, cementing that banking institutions are mandated to establish comprehensive policies and procedures to ensure adherence to the loan-to-value restrictions outlined in the regulations.
To this end, Dun says these regulations mirror recent economic conditions which required further relaxation while safeguarding financial stability.
In addition, she said these regulations are further designed to foster investment in the property sector, generate job opportunities, and make a positive contribution to economic growth and recovery, while also stressing the significant advantages it offers to property owners and prospective property buyers.
Subsequently, Dun explained that the latest regulations have replaced the previously issued regulations on restrictions on loan-to-value ratios in 2019.
“Simply put, the loan-to-value ratio represents the amount of money lent to a borrower by a banking institution to purchase a property in relation to the property’s price or valuation, and the deposit required from the borrower,” said Dun.
Independent Bank Researcher and Economist Josef Sheehama, said the announcement is good and bad news, in the sense that having people buying two properties without a deposit will increase the demand for houses.
“The move by the Bank of Namibia is to rehabilitate the property market, however, loan-to-value is used ratio in mortgage lending to determine the amount necessary to put in a down payment and whether the commercial bank will extend credit to a borrower.
Sheehama explained that banks assess the loan-to-value ratio to determine the level of risk exposure they take on when extending a mortgage and when borrowers request a loan for an amount that is at or near the appraised value, banks perceive that there is a greater chance of the loan going into default. This is because there is very little equity built up within the property. Hence he explained that the move is good but it must be applied precautionary.
